7. Mark Hohman has decided that it is time to buy a new car. He has found his dream car for $25,502 at Wisconsin Motors. Suppose he has a $2000 down payment. He has found an institution on the Internet that offers conventional loans for 3 years with 5.5% interest. a) What will be Mark's monthly payment? b) How much interest will be paid over the life of this loan? c) Create an amortization schedule for the first three months of this conventional loan.

Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA3: Time Value Of Money
Section: Chapter Questions
Problem 5CE
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Formula Summary:
Simple Interest:
I= Prt
A = P(1+ rt)
r
Compound Interest:
A = P(1+-)"
m
APY = (1+)" – 1
m
Continuously Compounded Interest: A = Pert
APY = er – 1
mt
(1+i)"
Savings Formula: A = D
where i
m
EAR: Total interest paid in one year
Principal Amount of Loan
1- (1+i)
-mt
Amortization Formula: P= D
m
Interest When Using Amortization Formula: I= nD– P
Discounted Loan: Amount Received = P – Prt
P+Prt
Add-on Loan: Monthly Payment
mt
Transcribed Image Text:Formula Summary: Simple Interest: I= Prt A = P(1+ rt) r Compound Interest: A = P(1+-)" m APY = (1+)" – 1 m Continuously Compounded Interest: A = Pert APY = er – 1 mt (1+i)" Savings Formula: A = D where i m EAR: Total interest paid in one year Principal Amount of Loan 1- (1+i) -mt Amortization Formula: P= D m Interest When Using Amortization Formula: I= nD– P Discounted Loan: Amount Received = P – Prt P+Prt Add-on Loan: Monthly Payment mt
7. Mark Hohman has decided that it is time to buy a new car. He has found his dream car for $25,502 at
Wisconsin Motors. Suppose he has a $2000 down payment. He has found an institution on the Internet
that offers conventional loans for 3 years with 5.5% interest.
a) What will be Mark's monthly payment?
b) How much interest will be paid over the life of this loan?
c) Create an amortization schedule for the first three months of this conventional loan.
Transcribed Image Text:7. Mark Hohman has decided that it is time to buy a new car. He has found his dream car for $25,502 at Wisconsin Motors. Suppose he has a $2000 down payment. He has found an institution on the Internet that offers conventional loans for 3 years with 5.5% interest. a) What will be Mark's monthly payment? b) How much interest will be paid over the life of this loan? c) Create an amortization schedule for the first three months of this conventional loan.
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