One of the largest car dealers in the city advertises a 3-year-old car for sale as follows. Cash price $13,750, or a down payment of $1375 with 45 monthly payments of $361.23. Sharon bought the car and made a down payment of $2000. The dealer charged her the same interest rate used in his advertisement. What is the monthly interest rate? How much will Sharon pay each month for 45 months? What effective interest rate is being charged?
Cash price $13,750,
down payment of $1375 with 45 monthly payments of $361.23
Sharon bought the car and made a down payment of $2000
The dealer charged her the same interest rate used in his advertisement
So first of all we will find out the effective interest rate is being charged for the figure shown in advertisement
Amount of the loan
=Cash price $13,750, – down payment of $1375
=12375
we will find interest rate as follow
A = P(1+[i/q])nq.
361.23 = 12375 ( 1 +(r /12)45
Solving this formulla we get interest rate = 15%
Now we will calculate the monthly interest rate? How much will Sharon pay each month for 45 months as follow
Sharon bought the car and made a down payment of $2000
So loan amount=
=Cash price $13,750 – down payment $ 2,000
= $ 11,750
EMI = P x r x (1 + r)n/((1 + r)n – 1)
=11750*0.0125*(1 + 0.0125)45/((1 + 0.0125)45 – 1)
= $ 343
