You want to purchase a boat that costs $40,000. You want to finance as much of the purchase as possible with a 5-year bank loan at 12% compounded monthly, but can only afford loan payments of $750 per month. How much will you need as a down payment to buy the boat? (Round to the nearest dollar)
A)$3,523
B)$4,637
C)$5,147
D)$6,284

Question

Quizplus · Accepted Answer

To find the down payment, calculate the present value of the loan payments using the formula for the present value of an annuity. The present value of $750 monthly payments for 5 years at 12% compounded monthly is approximately $33,716. Subtract this from the boat's price ($40,000) to find the down payment needed, which is $6,284.

You Want to Purchase a Boat That Costs $40,000