A sports car is on sale at the local dealership.The price discounted is $12,595 .With 5% down, you can pay $249.34 a month for 60 months to pay for the car which includes interest.What is the total cost of this car if you bought on the installment plan? How much interest would be paid?

Answer 1

after 5% down payment you would owe 11965.25
249.34 times 60 = 14960.40

interest paid = 14960.40 - 11965.25 = $2995.15

(I hope they don't teach you that you can now find the rate of interest to be 2995.15/(11965.15(5)) = .05 or 5% ????)

the actual monthly rate of interest:
let it be i
11965.25 = 249.34( 1 - (1+i)^-60)/i
running it through a good "equation solver" program , I got i = .0076378
the annual rate is .0916 or 9.16%

check:
249.34( 1 - 1.0076378^-60)/.0076378 = 11965.24 , wow, not bad