Engineering Accounting

A car may be purchased with a $3500 down payment now and 72 monthly payments of $480. If interest rate is 12% compounded monthly, what is the price of the car?

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  1. Price = 3500 + (480*72) =

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  2. P = 3500 + (480*72) = 38,060.

    P = Po(1+r)^n = 38,060,

    r = 0.12/12 = 0.01/mo., n = 72 Compounding periods.

    Po(1.01)^72 = 38,060, 2.047Po = 38,060, Po = $18,592.16. = Price of car.

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  3. The Equation used most often for home and auto loans:
    P = Po*r*T/(1-(1+r)^-T)

    (Po*0.01*72)/(1-1.01^(-72)) = 38,060, 0.72Po/0.51150 = 38,060,
    1.41Po = 38,060, Po = $27,038.67.
    = Cost of car.

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