Question

Part D and E please

As in Problem 1, once again, you are borrowing $6500 to purchase a car. However, now the first payment is due immediately. There will be a total of 36 monthly payments (The first payment occurs immediately. The remaining 35 occur at the end of each of the following months). The advertised interest rate is 9% APR (therefore use a monthly discount rate of r-0.75% in your computations). The payments will all be equal in size. HINT: This is an annuity due problem. Make sure you understand the discussion in the book, especially Example 5B- paying attention to Footnote 3 (which applies to Parts B, C, and D). Also work the Annuity Due problems at the end of the chapter before you work this problem.

Answer 1

Answer:

Part D)

Let x be the initial payment

So g=-0.75% every month

r=0.75%

n=35 months

P= $6500

P=x*(1+r)*(1-{(1+g)/(1+r)}^36)/(r-g)

6500=X*(1+0.75%)*(1-{(1-0.75%)/(1+0.75%)}^36)/(0.75%-(-0.75%))

X=$231.92

So payment occurs from 15 month today= 231.92*(1-0.75%)^15=$207.163

Part E)

Let x be the initial payment

So g=0.75% every month

r=0.75%

n=35 months

P= $6500

P=x+x*(1+g)*n/(1+i)

6500=x+x*(1+0.75%)*35/(1+0.75%)

X=180.55

So payment occurs from 15 month today= 180.55*(1+0.75%)^15=$201.97