To buy a car, you borrow $25,000 with a term of three years at an APR of 6.5%. What is your monthly payment?

Question

Quizplus · Accepted Answer

To calculate the monthly payment, we can use the formula:

M = P * (r(1+r)^n) / ((1+r)^n - 1)

where:
M = monthly payment
P = principal (amount borrowed) = $25,000
r = monthly interest rate = APR / 12 = 6.5% / 12 = 0.0054167
n = total number of payments = 3 years * 12 months/year = 36

Plugging in the values, we get:

M = $25,000 * (0.0054167*(1+0.0054167)^36) / ((1+0.0054167)^36 - 1) = $766.23 (rounded to the nearest cent)

Therefore, the monthly payment is $766.23, which corresponds to choice B.

To Buy a Car, You Borrow $25,000 with a Term