Question
Smith borrows 20000 to purchase a car. The car dealer finances the purchase and offers Smith two alternative financing plans, both of which require monthly
Smith borrows 20000 to purchase a car. The car dealer finances the purchase and offers Smith two alternative financing plans, both of which require monthly payments at the end of each month for 4 years starting one month after the car is purchased.
1. 0% interest rate for the first year followed by 6% nominal annual interest rate compounded monthly for the follwing three years.
2. 3% nominal annual interest rate compounded monthly for the first year followed by 5% nominal annual interest compounded monthly for the following three years.
For each of 1 and 2 find the monthly payment and the outstanding balance on the loan at the end of the first year.
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