Your dream is about to come true! You are about to buy your first classic sports car. To do so, you have arranged to borrow $65,000 from your local credit union. The interest rate on the loan is 6.00%. To simplify the calculations, assume that you will repay your loan over the next four years by making annual payments at the end of each year. According to the loan officer at the credit union, you must answer the following questions before you can go pick up your new car. a. How much is the annual payment on your new car loan?
b. How much of your Year 2 payment will constitute interest on your loan?
c. How much of your Year 3 payment will be used to repay principal on the loan?
d. How much will you pay in total interest to finance the purchase of your $65,000 car?

Car Loan

a. The annual payment on the new car loan = $18,758.45.

b. Year 2 payment that is interest on the loan = $3,008.49.

c. Year 3 payment that is principal repayment = $16,694.95

d. The total interest to be paid to finance the purchase of the $65,000 car is:

= $10,033.79.

Explanation:

Data and Calculations:

Loan Amount  65000

Loan Term  4  years 0  months

Interest Rate  6

Compound  Annually (APY)

Pay Back  Every Year

Results:

Payment Every Year   $18,758.45

Total of 4 Payments   $75,033.79

Total Interest   $10,033.79

Principal 87%  

Interest 13%

Amortization Schedule

 Beginning Balance        Interest           Principal      Ending Balance

1             $65,000.00           $3,900.00      $14,858.45           $50,141.55

2              $50,141.55           $3,008.49     $15,749.95           $34,391.60

3             $34,391.60           $2,063.50     $16,694.95           $17,696.65

4             $17,696.65            $1,061.80      $17,696.65           -$0.00

a) both were commissioned explorers