You want to buy a new sports car for $55,000. The contract is in the form of a 60-month annuity due at an APR of 5.6 percent, compounded monthly. What will be your monthly payment?

Question

Quizplus · Accepted Answer

To calculate the monthly payment of the annuity due, we can use the formula:
P = A/(1 - (1+r/n)^(-nt)), where P is the monthly payment, A is the amount borrowed, r is the annual interest rate, n is the number of times in a year that interest is compounded, and t is the number of years.
Plugging in the values, we get:
P = 55000/(1 - (1+0.056/12)^(-60*12/12))
P = $1,048.21
Therefore, the monthly payment will be $1,048.21, which is closest to choice C.

You Want to Buy a New Sports Car for $55,000