1 answer

Problem 5 (14 points) A recent graduate is purchasing a used automobile for $4.500. He wishes...

Question:

Problem 5 (14 points) A recent graduate is purchasing a used automobile for $4.500. He wishes to limit his monthly payment to
Problem 5 (14 points) A recent graduate is purchasing a used automobile for $4.500. He wishes to limit his monthly payment to $100 for a period of two vears. What down payment must he make to complete the purchase if the interest rate is 15%, compounded monthly on the loan Remember: Clearly show the cash flow diagram(s) and the necessary equivalent model(s). (3 pts)

Answers

t = 24 months

i = 15% / 12 = 1.25% per month

Downpayment required = 4500 - 100 * (P/A,1.25%,24)

= 4500 - 100 * ((1 + 0.0125)^24-1)/(0.0125 * (1 + 0.0125)^24)

= 4500 - 100 * ((1.0125)^24-1)/(0.0125 * (1.0125)^24)

= 4500 - 100 * 20.624235

= 2437.57 ~ 2438 (Nearest Dollar)

CFD

.

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