Certified Financial Planner (CFP) Practice Exam 2025 – All-in-One Study Guide for Exam Success!

Question: 1 / 505

What is the monthly payment required for a purchase financed at 14% compounded monthly for three years on an automobile costing $14,500?

$489.86

$456.55

$412.39

$495.58

To determine the monthly payment required for financing an automobile costing $14,500 at an interest rate of 14% compounded monthly over three years, it is essential to use the formula for calculating the monthly payment on an installment loan. The formula is derived from the present value of an annuity:

\[

M = P \times \left( \frac{r}{1 - (1 + r)^{-n}} \right)

\]

where:

- \( M \) is the monthly payment,

- \( P \) is the principal amount (the loan amount),

- \( r \) is the monthly interest rate, and

- \( n \) is the total number of payments.

For this scenario:

- The principal amount \( P \) is $14,500,

- The annual interest rate is 14%, so the monthly interest rate \( r \) is \( \frac{14\%}{12} = \frac{0.14}{12} \approx 0.0116667 \),

- The loan term is three years, which equates to \( n = 3 \times 12 = 36 \) months.

Substituting these values into the formula yields:

\[

M =

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