(Present value of an annuity) You wish to borrow $18,000 to buy a new automobile. The rate is 8.6% over four years with monthly payments. Find the monthly payment. (Answer: $444.52)

Question

I have tried figuring out this formula for hours and am not having any luck. I have used my book, looked for examples and used my financial equations book. No luck getting this to work out right. Can someone please help?

Answer 1

Hi, so here are the givens in the problem.

interest rate = 8.6%/12 ----> Interest rate is given annualized you must divide by the period which is monthly

Months = 4 * 12 ---> total number of periods 4 years

Present value of loan = 18000

FV = 0 because you are paying this down

Solve for payment gives you 444.5192

this can be solved with a financial calculator or excel pretty easily

or you can do it by plugging into the formula which is more work.

18000 * (.086/12) = (pmt)*(1-(1/(1+(.086/12))^48