Chapter 7 Financial Planning Exercise 10 Calculating payments, interest, and APR on auto loan After careful comparison shopping, Bill Withers decides to buy a new Toyota Camry. With some options added, the car has a price of $27,500 - including plates and taxes. Because he can't afford to pay cash for the car, he will use some savings and his old car as a trade-in to put down $6,500. He plans to finance the rest with a $21,000, 59-month loan at a simple interest rate of 10 percent. a. What will his monthly payments be? Round the answer to the nearest cent. $0 per month b. How much total interest will Bill pay in the first year of the loan? Round the answer to 2 decimal places. (Use a monthly payment analysis procedure similar to the one in Exhibit 7.7.) c. How much interest will Bill pay over the full (59-month) life of the loan? Round the answer to the nearest cent. d. What is the APR on this loan? Round the answer to the nearest cent. EXHIBIT 7.7 Monthly Payment Analysis for a Simple Interest Installment Loan (Assumes a $1,000, 8%, 12-Month Loan) Part of each monthly payment on an installment loan goes to interest and part to principal. As the loan is paid down over time, less and less of each payment goes to interest and more and more goes to principal. Month Monthly Payment (2) $86.99 86.99 86.99 Interest Charges [(1) X 0.00667] (3) $6.67 6.13 5.59 Principal [12) - (3)] (4) $80.32 80.86 81.40 81.94 82.49 LO Outstanding Loan Balance at Beginning of Month (1) $1,000.00 919.68 838.82 757.42 675.49 593.00 509.97 426.38 342.23 25752 172.25 86.41 1.72 86.99 86.99 86.99 $1,043.88 1.15 0.58 $43.88 84.71 85.27 85.84 86.41 $1,000.00 Total Note: The monthly interest rate is 0.08/12 -0.00667 Column 1 values for months 2 through 12 are obtained by subtracting the principal payment shown in column 4 for the preceding month from the outstanding loan balance shown in column 1 for the preceding month; thus, $1,000 - $80.32-5919.68, which is the outstanding loan balance at the beginning of month 2