Jason bought a car for $40,000 upon graduation from college with an engineering degree and a very good job offer. A down payment of $5,000 was paid by his dad as graduation gift. The rest of the amount was financed with Generous Motors at 6% nominal interest with 60 monthly payments, the first payment which is to start at the end of 13^th month. Determine his monthly payment.

Question

Quizplus · Accepted Answer

The financed amount is $35,000 ($40,000 - $5,000). The loan is a deferred annuity with a 6% annual interest rate, compounded monthly, for 60 months. The monthly payment can be calculated using the formula for the present value of an annuity, adjusted for the deferred start. The correct monthly payment is approximately $717.38.

Jason Bought a Car for $40,000 Upon Graduation from College