Fred purchased a boat for $18,000. He paid 10% down and the balance in equal monthly payments over five years at 18% compounded monthly. What does Fred pay each month?
A) $405.29
B) $457.08
C) $411.37
D) $450.33
E) $344.20

Question

Quizplus · Accepted Answer

Fred's down payment is 10% of $18,000, which is $1,800. Therefore, the balance he needs to finance is $18,000 - $1,800 = $16,200. The interest rate is 18% per annum, compounded monthly, which means the monthly interest rate is 18%/12 = 1.5%. The loan term is 5 years, which is 60 months. Using the formula for a fixed-rate loan payment, $PMT = P \times \frac{r(1+r)^n}{(1+r)^n-1}$, where PMT is the monthly payment, P is the principal amount ($16,200), r is the monthly interest rate (1.5% or 0.015), and n is the total number of payments (60), we can calculate the monthly payment. Plugging the values into the formula gives a monthly payment of approximately $411.37.

Fred Purchased a Boat for $18,000