You want to figure out how much you would have to pay for buying a new car. To calculate you required payments, the car loan agency (e.g. bank) simply computes the net present value or NPV of all of your payments over time and adjusts your monthly payment so that the NPV of all of your payments at the interest rate charged by the loan agency is equal to the purchase cost of the vehicle plus any other fees. Lets assume you want to buy a new car that costs $25,000 including all fees and taxes and that you want to put an initial down payment today of $3000 and finance the remaining $22,000 over the next 36 months. Your first payment will be due at the end of first month and each subsequent payment will be due at the end of the remaining 36 months. The loan company charges you an annual percentage interest rate (APR) of 6% (i.e. equivalent to a monthly rate of 0.5% per month), but the interest is compounded monthly.

Answer the following questions:

1. What would your monthly car payment be assuming that all payments are equal?

2. Draw a Cash Flow Diagram for this transaction.