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Math/Finance

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A guy buys a car for $29,000 and finances it with a four year, 7% APR with monthly payments and compounding. How much of his third payment goes toward repaying principal?

  • Math/Finance -

    first you need the monthly payment
    i = .07/12= .00583333
    n = 4(12) = 48
    29000 = paym( 1 - 1.00583333^-48)/.00583333
    payment = $694.44

    amount owing after 2 payments
    = 29000(1.00583333)^2 - 694.44(1.0058333^2 - 1)/.00583333
    = 27946.39

    interest on that is 163.02
    so principal of 3rd payment = 694.44 - 163.02 = 531.42

    or, we could set up a chart
    payment# paym interest principal balance
    ...0.....................................................29000.00
    ...1............694.44..169.17 ..525.27..28474.73
    ...2............694.44..166.10 ..528.34..27946.39
    ...3............694.44..163.02 ..531.42..27414.97

    notice the principal in the third row is 531.42 , exactly to the penny of the answer to my first method.

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