Question

Amy bought a new car for $21,000

. She paid a 10%
down payment and financed the remaining balance for 36
months with an APR of 3.5%
. Determine the monthly payment that Amy pays. Round your answer to the nearest cent, if necessary.

Answer 1

Explanation:

To determine the monthly payment Amy pays, we can use the formula for calculating the monthly payment on a loan. The formula is:

M = (P * r * (1 + r)^n) / ((1 + r)^n - 1)

Where:

M = Monthly payment

P = Principal amount (loan amount)

r = Monthly interest rate

n = Number of monthly payments

Given information:

Principal amount (loan amount) = $21,000

Down payment = 10% of $21,000 = $2,100

Remaining balance = $21,000 - $2,100 = $18,900

APR = 3.5%

Number of monthly payments (n) = 36

To calculate the monthly interest rate (r), we divide the annual interest rate by 12 (number of months in a year):

Monthly interest rate (r) = APR / (12 * 100)

Substituting the values into the formula:

r = 3.5 / (12 * 100) = 0.0029167 (rounded to 7 decimal places)

M = (18,900 * 0.0029167 * (1 + 0.0029167)^36) / ((1 + 0.0029167)^36 - 1)

Using a calculator to evaluate the expression within the formula:

M ≈ $539.26

Therefore, the monthly payment that Amy pays is approximately $539.26.