Elizabeth is buying a new car. She plans to finance part of the purchase price through a loan from the car dealership, which claims the following: “We have a fantastic deal, for this month only: you can finance $16,000 for 2 years at an incredible flat rate of only 4%, with fixed monthly payments”.
1. How much does Elizabeth have to pay each month?
2. What is the implied APR (“Annual Percentage Rate”)?
3. Confirm your result from (2) by calculating Elizabeth’s exact payment schedule: for each of the 24 months, what is the remaining outstanding balance of the loan, how much does Elizabeth pay in interest and how much in amortization? (you might want to use excel for this one)
Show all of your work including Excel calculations.