Computing the Amount of Periodic Payments
Nathan Smith has just purchased a new car for $28,000. He paid $8,000 down and signed a
note for the remaining $20,000. The interest rate on the note is 12% compounded monthly,
or 1% per month.
Required:
1. Compute the amount of Mr. Smith’s monthly payment if he plans to pay off the $20,000
note in 30 monthly payments. Remember: The interest rate is 1% per month.
2. Repeat part (1) assuming that Mr. Smith wishes to repay the note in 60 monthly payments.
3. Assume that Mr. Smith decides to repay the note in 60 monthly payments. What is the
balance remaining on the note immediately after he makes the 30th payment? Hint:
Compute the present value of the remaining 30 payments.