An installment contract for the purchase of a car requires payments of $346.89 at the end of each month for 6 years. Interest is 12% per annum compounded monthly. (a) What is the amount financed? (b) How much is the interest cost?

An installment contract for the purchase of a car requires payments of $346.89 at the end of each month for 6 years. Interest is 12% per annum compounded monthly. (a) What is the amount financed? (b) How much is the interest cost?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

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Round to the nearest cent as needed.

An installment contract for the purchase of a car requires payments of $346.89 at the end of each month for 6 years. Interest is 12% per annum compounded
monthly.
(a) What is the amount financed?
(b) How much is the interest cost?

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