Interest Tables and Calculator Use Permitted (write legibly) Show all of your work. Cash flow diagrams are not required, but they will lead to more partial credit. Additional paper is also allowed. 1. You are planning to buy a car for $23,000 with a 5 year loan. Adam’s Autos will give you the loan at ½% annual interest compounded monthly. What is your monthly car payment? 2. You are considering the purchase of two CAD systems. System A costs $4000 plus an additional $1200 per year maintenance and training fee. System B costs $7000, but maintenance and training are only $300 per year. Your company typically upgrades its CAD systems every four years. If the interest rate is 4%, which choice has the lower present equivalent cost and how much lower is it?

Interest Tables and Calculator Use Permitted (write legibly)

Show all of your work. Cash flow diagrams are not required, but they will lead to more partial credit. Additional paper is also allowed.

You are planning to buy a car for $23,000 with a 5 year loan. Adam’s Autos will give you the loan at ½% annual interest compounded monthly. What is your monthly car payment?

 

 

 

 

 

 

Answer:

 

0.5% annual interest = 0.5% / 12 = 0.04% monthly interest rate

Number of months = 5 x 12 = 60

Monthly car payment = Loan amount x [r x (1 + r)N] / [(1 + r)N – 1]

= $23,000 x [0.0004 x (1.0004)60] / [(1.0004)60 – 1]

= $23,000 x [0.0004 x 1.0243] / [1.0243 – 1]

= $23,000 x 0.0004 / 0.0243

= $387.80

Cash flow diagram as follows.

Asked on February 15, 2018 in economics.
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