To find out the monthly payments for each loan option, we can use the loan amortization formula:
Monthly Payment = (Loan Amount * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Number of Payments))
For Installment Loan A:
Loan Amount = $16,000
Annual Interest Rate = 5.9%
Monthly Interest Rate = 5.9% / 12 = 0.4917%
Number of Payments = 3 years * 12 months/year = 36
Monthly Payment (Installment Loan A) = (16000 * 0.4917%) / (1 - (1 + 0.4917%)^(-36))
For Installment Loan B:
Loan Amount = $16,000
Annual Interest Rate = 5.8%
Monthly Interest Rate = 5.8% / 12 = 0.4833%
Number of Payments = 5 years * 12 months/year = 60
Monthly Payment (Installment Loan B) = (16000 * 0.4833%) / (1 - (1 + 0.4833%)^(-60))
Now, we can calculate the monthly payments for each loan option:
Monthly Payment (Installment Loan A) = ($79.12)
Monthly Payment (Installment Loan B) = ($71.31)
Therefore, the monthly payment for Installment Loan A is $79.12, while the monthly payment for Installment Loan B is $71.31.
Suppose that you decide to borrow $16,000
for a new car. You can select one of the following loans, each requiring regular monthly payments.
Installment Loan A: three-year loan at 5.9%
Installment Loan B: five-year loan at 5.8%
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