Scott wants to purchase a Toyota Rav4 XLE. The model he wants is available for $26,789.Scott has saved $4,000 for a down payment, and the dealer has offered $3,500 for his trade-in. He is considering three financing options.Toyota's financial department is offering 0% interest for three years.Scott's credit union is offering 1.98% compounded monthly for four years.His bank is offering 2.97% compounded monthly for five years.Your assignment:a) What would Scott's monthly loan payment be for each option?b) What total amount of interest would Scott pay for each option?c) Describe the advantages and disadvantages of each financing option. If you were Scott,which of these three financing options would you use and why?

Question
Asked Oct 15, 2019
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Scott wants to purchase a Toyota Rav4 XLE. The model he wants is available for $26,789.
Scott has saved $4,000 for a down payment, and the dealer has offered $3,500 for his trade-
in. He is considering three financing options.
Toyota's financial department is offering 0% interest for three years.
Scott's credit union is offering 1.98% compounded monthly for four years.
His bank is offering 2.97% compounded monthly for five years.
Your assignment:
a) What would Scott's monthly loan payment be for each option?
b) What total amount of interest would Scott pay for each option?
c) Describe the advantages and disadvantages of each financing option. If you were Scott,
which of these three financing options would you use and why?
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Scott wants to purchase a Toyota Rav4 XLE. The model he wants is available for $26,789. Scott has saved $4,000 for a down payment, and the dealer has offered $3,500 for his trade- in. He is considering three financing options. Toyota's financial department is offering 0% interest for three years. Scott's credit union is offering 1.98% compounded monthly for four years. His bank is offering 2.97% compounded monthly for five years. Your assignment: a) What would Scott's monthly loan payment be for each option? b) What total amount of interest would Scott pay for each option? c) Describe the advantages and disadvantages of each financing option. If you were Scott, which of these three financing options would you use and why?

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Expert Answer

Step 1

Part (a): What would Scott’s monthly loan payment be for each option?

 

First find the amount financed by subtracting the down payment and trade in value from the list price.

 

26780 - 4000 - 3500 = 19289

 

Option (1)

 

There is no interest charge for this option,

 

Total number of month in three years is 36 months.

 

So, monthly payment loan payment for option 1 is: 19289/36 = $535.81

 

Option (2)

 

1.98% compounded monthly for four years for principal P = 19289

 

Time (t) = 4years = 48 months

 

Rate (r) = 1.98%

12n
712
A P 1+
100
(B00)
monthly loan paym ent for option second =P
-nt
+R,
0198
12
= 19289
-45
0.0198
1-1+
12
= $418.31
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12n 712 A P 1+ 100 (B00) monthly loan paym ent for option second =P -nt +R, 0198 12 = 19289 -45 0.0198 1-1+ 12 = $418.31

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Step 2

For option (3)  2.97% compounded monthly for five year:

(B100)
1-(1+ R100))
monthly loan payment for option third =P
0297
12
19289-
-50
0.0297
1-1+
12
=$346.34
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(B100) 1-(1+ R100)) monthly loan payment for option third =P 0297 12 19289- -50 0.0297 1-1+ 12 =$346.34

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Step 3

Part B

 

 

(b) Total amount of interest would Scott pay for each option

 

 

Option (1):  0% as given in the question.

 

Option (2):  48(418.31) – 19289 = $789.88

 

Option (3): &...

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