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Derek borrows $40,800
Derek borrows $40,800.00 to buy a car. He will make monthly payments for 6 years. The car loan has an interest rate of 6.44%. After a 14.00 months Derek decides to pay off his car loan. How much must he give the bank?
Expert Solution
First we calculate Monthly Payment using PMT Function in Excel:
=pmt(rate,nper,-pv,fv)
Here,
PMT = Monthly Payment = ?
Rate = 6.44%/12
Nper = 6 years* 12 months = 72 months
PV = $40,800
FV = 0
Substituting the values in formula:
=pmt(6.44%/12,72,-40800,0)
PMT or Monthly Payment = $684.68
Now we calculate Present Value using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Present Value = ?
Rate = 6.44%/12
Nper = 72-14 = 58 months
PMT = $684.68
FV = 0
Substituting the values in formula:
=-pv(6.44%/12,58,684.68,0)
PV or Present Value = $34,047.52
Ho, He must give 34,047.52 to the bank.
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