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Suppose Alice buys a car and obtains a 5 year loan for $25,000 at an interest rate of 6%.

Suppose A is the amount borrowed, r is the interest rate (in decimal form), and m is the total number of monthly payments.

Let w = (r)/(12)

Then the formula to determine the monthly payment amount for a loan is given by

(Aw)/1-(1)/ (1+w)^m

(a) What is the numerical value of w?

(b) What is the monthly payment? (Show values substituted in the formula, and calculate the numerical amount.) Note: Since the loan is an amount in dollars and cents, it’s important to maintain a high degree of precision in intermediate calculations, and round to the nearest cent at the end.

(c) If Alice makes all 60 payments, how much will have been paid altogether?

  • Algebra -

    The amortization formula that you should be using is given here:
    The "A" term in that formula is the payment required per period. What you are using for A is the principal (P) in that formula. Your numerical value of w should be 0.005.

  • Algebra -

    What should the set up of this equation look like? I tried to put it together and this is what I got. What am I doing wrong? Thanks!



    m = (Aw)/1 - 1/(1+w)^m

    (25000)(0.005)/1- (1)/(1+0.005)^60

    Is any of this correct?

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