Suppose that you decide to buy a car for $57,000, including taxes and license fees. You saved $11,000 for a down payment. The dealer is offering you a choice between two incentives. Incentive A is $4000 off the price of the car, followed by a four-year loan at 6.38%. Incentive B does not have a cash rebate, but provides free financing (no interest) over four years. What is the difference in monthly payments between the two offers? Which incentive is the better deal? Use PMT= PA n [-]

Suppose that you decide to buy a car for $57,000, including taxes and license fees. You saved $11,000 for a down payment. The dealer is offering you a choice between two incentives. Incentive A is $4000 off the price of the car, followed by a four-year loan at 6.38%. Incentive B does not have a cash rebate, but provides free financing (no interest) over four years. What is the difference in monthly payments between the two offers? Which incentive is the better deal? Use PMT= PA n [-]

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 15P

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Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
Suppose that you decide to buy a car for $65,000, including taxes and license fees. You saved $13,000 for a down payment. The dealer is offering you a choice between two incentives. Incentive A is $7000 off the price of the car, followed by a three-year loan at 6.37%. Incentive B does not have a cash rebate, but provides free financing (no interest) over three years. What is the difference in monthly payments between the two offers? Which incentive is the better deal?
Suppose that you decide to buy a car for $58,000, including taxes and license fees. You saved $10,000 for a down payment. The dealer is offering you a choice between two incentives. Incentive A is $7000 off the price of the car, followed by a three-year loan at 5.53%. Incentive B does not have a cash rebate, but provides free financing (no interest) over three years. What is the difference in monthly payments between the two offers? Which incentive is the better deal? Use PMT=Prn1−1+rn−nt.
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A student is buying a new car. The car’s price is $37,500, the sales tax is 6%, and the title, license, and registration fee is $1250 to be paid in cash. The dealer offers to finance 95% of the car’s price for 48 months at a nominal interest rate of 9% per year, compounded monthly. (a) How much cash is paid when the car is purchased? (b) How much is the monthly payment?
Suppose that you have decided to buy a certain car that costs $28,950, including taxes and license fees. The dealership gives you two financing options: 1) Option A: The dealership takes $800 off the price of the car. You must make a down payment of $2000 and can finance the rest at 2.99% APR for 72 months. a) How much will you be financing? b) How much will your monthly payments be under this option? (Round to the nearest dollar.) c) How much total money will you pay under this option? (Don’t forget to include your down payment.) 2) Option B: The dealership takes $1000 off the price and 0% financing for 36 months. a) How much will you be financing? b) How much will your monthly payments be under this option? (Round to the nearest dollar.) c) How much total money will you pay under this option? 3) Would you choose option A or option B? Why?
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Suppose that you decide to buy a car for $28,635, including taxes taxes and license fees. You saved $7000 for a down payment and can get a four-year car loan at 6.87%. The monthly payment is $_____ The total interest for the loan is $___________
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In August 2008, a car manufacturing company was offering the choice of a 3.3% loan for 72 months, or $3000 cash back on the purchase of a $25,377 car. (a) If someone took the 3.3% loan offer, how much will the monthly payment be? (b) If someone took the $3000 cash-back offer and can borrow money from their local credit union at 7.6% interest compounded monthly for six years, how much will the monthly payment be? (c) Which of the two offers is more favorable?
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