Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase?

Question

Quizplus · Accepted Answer

To compute the initial loan amount, you must use a monthly interest rate since the loan requires 36 equal monthly payments. The $500 cash down payment is not relevant in calculating the loan amount. The loan is not an annuity due because the first payment is due 30 days from today, which means it's a regular annuity. Therefore, option A is incorrect. Option B is also incorrect because the $500 is only the down payment and not the present value of the purchase. Option E is also incorrect because the future value is not asked for in the question, and even if it were, the formula would be a bit different.

Christie Is Buying a New Car Today and Is Paying