I was looking for a strategy for a problem I was working on
A car may be purchased with a 3k downpayment now and 60 month payments of 280. If the interest rate is 12% compounded monthly, what is the price of the car?
I know that 12% is the nominal rate and that you have to divide 12% by 12 months to get 1% interest per month.
So do I find the effective rate and than apply that interest rate to the 5 years of payments made?
Hello, Jason!
We're expected to know the Amortization Formula
. .
We will use this variation: .A car is purchased with a $3,000 downpayment and 60 monthly payments of $280.
If the interest rate is 12% compounded monthly, what is the price of the car?
We have: .
Hence: .
Therefore, the amount of the loan is
. . and the price of the car is: .