Angela is considering buying a new Honda Accord. The purchase price of the car i

Question

Angela is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Angela has a trade-in worth $4500. She needs a loan to buy the car and knows that her local bank requires her to put down 10% of the purchase price after the value of the trade-in is considered. Angela also knows that bank will charge 8% for the loan and require monthly payments over the next 4 years. Please determine: a. The initial principal amount of the loan if Angela makes the minimum down payment on the car. b. The size of Angela

Explanation / Answer

Funds reqd = Car price - Tradin = 21000-4500 = 16500 So Loan Reqd = Funds Reqd - 10% of Funds Reqd = 90%*Fund Reqd = 90%*16500 = 14850 So Initial Pricnicpal amount of Loan = $14850 ....Ans (a) b. The size of Angela’s monthly payments Term = 4 Yrs = 4*12 = 48 months = nper Rate = 8% pa = 8%/12 monthly So Monthly payment = PMT(rate,nper,pv,fv) = PMT(8%/12,48,14850,0) = $363 c. The amount of Angela’s total financing charges over the 4 year term of the loan? CUMIPMT. Returns the cumulative interest paid on a loan between start_period and end_period. (Pl install Analysis ToolPak in excel) So Total Int is CUMIPMT(rate,nper,PV,start_period,end_period,FV) ie Total Int = CUMIPMT(8%/12,48,14850,1,48,0) = $2,552

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