Given that a car sold for $20,000 is financed with a 3-year loan at a 6% annual interest rate and the payment for the first month is $608.44, we need to find the monthly interest rate.
To solve this, we can use the following formula to calculate the monthly interest rate:
i = r/12
where,i is the monthly interest rate
r is the annual interest rate.
Substituting the given values in the above formula, we get
i = 6/12= 0.5
Now, we know that the monthly payment of the loan is $608.44.
Using this information, we can calculate the principal amount borrowed using the formula:
PV = PMT * [(1 - (1 + i)^(-n)) / i]
where PV is the present value or the principal amount,
PMT is the monthly payment,
i is the monthly interest rate,
n is the number of periods or the number of months in the loan term.
Substituting the given values in the above formula, we get
PV = 608.44 * [(1 - (1 + 0.005)^(-36)) / 0.005]PV = $20,000
Therefore, the monthly interest rate is 0.5% or 0.005 (approx).
Hence, the correct option is option (c) 0.5%.