Russ T. Steele (a AMU engineering major) is thinking of buying a brand new sport utility vehicle for $26,000 today and putting $4000 down through the trade of his existing vehicle. The vehicle loan is for 5 years at an APR of 18% because he currently has a terrible credit rating. If interest is compounded monthly and his payments are monthly, the total interest that Mr. Steele will have paid on the loan if he makes only the monthly payments (no more, no less!), will be approximately equal to a total of: O a. $11,500 O b. $19,500 O c. $15,500 O d. $17,500
Russ T. Steele (a AMU engineering major) is thinking of buying a brand new sport utility vehicle for $26,000 today and putting $4000 down through the trade of his existing vehicle. The vehicle loan is for 5 years at an APR of 18% because he currently has a terrible credit rating. If interest is compounded monthly and his payments are monthly, the total interest that Mr. Steele will have paid on the loan if he makes only the monthly payments (no more, no less!), will be approximately equal to a total of: O a. $11,500 O b. $19,500 O c. $15,500 O d. $17,500
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Problem Statement:**
Russ T. Steele (an AMU engineering major) is thinking of buying a brand new sport utility vehicle for $26,000 today and putting $4,000 down through the trade of his existing vehicle. The vehicle loan is for 5 years at an APR of 18% because he currently has a terrible credit rating. If interest is compounded monthly and his payments are monthly, the **total interest** that Mr. Steele will have paid on the loan if he makes only the monthly payments (no more, no less!) will be approximately equal to a total of:
- a. $11,500
- b. $19,500
- c. $15,500
- d. $17,500
**Explanation:**
In this problem, you are tasked with calculating the total interest paid over the duration of an auto loan. Here are the key details:
1. **Loan Amount:** The initial loan amount after the down payment is $26,000 - $4,000 = $22,000.
2. **Loan Term:** 5 years
3. **APR (Annual Percentage Rate):** 18%
4. **Compounding:** Monthly
To calculate the total interest, one would typically use the formula for the monthly payment on an amortized loan and then multiply the monthly payment by the number of months (60) to find the total payment. The total interest paid is the total payment minus the initial loan amount.
You can select the correct answer choice based on your calculations.
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