Thinking Mathematically (6th Edition)

Published by Pearson
ISBN 10: 0321867327
ISBN 13: 978-0-32186-732-2

Chapter 8 - Personal Finance - 8.6 Cars - Exercise Set 8.6 - Page 548: 33

Answer

The monthly payment is less in case of 6 years and the payment of total interest is less in case of 3 years.

Work Step by Step

$PMT=\frac{P\left( \frac{r}{n} \right)}{\left[ 1-{{\left( 1+\frac{r}{n} \right)}^{-nt}} \right]}$ PMT is the amount of payment regularly made in context of time value of money. This is basically used to calculate the payment for a loan by considering the rate of interest and a payment made at regular interval. Rate of interest and payment made at regular interval can be fixed. PMT is calculated by using the formula as given below: $PMT=\frac{P\left( \frac{r}{n} \right)}{\left[ 1-{{\left( 1+\frac{r}{n} \right)}^{-nt}} \right]}$ The situation in which the interest rate of two loans are equal but the period of loan varies from 3 to 6 years.In such a case, the monthly payment is less where the loan period is 6 years but at the same time, the interest paid is more in comparison to 3 years. This is due to the reason of time value of money.
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