Question

First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would:


A. Multiply $10,500 by the present value of 1.
B. Divide $10,500 by the future value of an ordinary annuity of 1.
C. Divide $10,500 by the present value of an annuity due of 1.
D. Multiply $10,500 by the present value of an ordinary annuity of 1.

Answer 1

Answer:

First Financial would divide the $10,500 loan by the present value of annuity due of 1.

The correct answer is C

Explanation:

Present value of annuity formula is used for determining the amount                   of loan payment. Since the payments will be made at the beginning of each month, we will apply the formula for present value of annuity due. In order to determine the amount of monthly payment, we will divide the principal by the present value of annuity due of 1.