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Valley Auto sold a used car priced at $10 600 for 10% down and the balance to be paid
in equal monthly payments over four years at 7.2% compounded monthly.
How much does the buyer have to pay at the end of each month?
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With the discount of 10%, you actually buy a used car for 0.9*10600 = 9540 dollars.
You pay back for your purchase by equal parts in 4 years as a loan. They want you find your monthly payment.
Use the formula for the monthly payment for a loan
M =
where P is the loan amount; r = = 0.006 is the effective interest rate per month;
n is the number of payments (same as the number of months, or 4*12 = 48); M is the monthly payment.
In this problem P = $9540; r = 0.006.
Substitute these values into the formula and get for monthly payment
M = = = 229.3334.
Round it to the closest cent. You will get the ANSWER: the monthly payment is $229.33.
In total, you will pay 4*12*229.33 = 11,007.84 dollars in 4 years.
The difference $11.007.84 - $9540 = $1,467.84 is the interest you pay to financial company.
Solved.
To see many other similar solved problems, look into the lesson
- Loan problems
in this site.
Learn the subject from there.