What would be the principal of the loan if you chose Option 1? (Hint: don’t forget the down payment.) 2. Find the monthly payment if you chose Option 1. 3. Find the total interest paid over the life of the loan if you chose Option 1.
Suppose that your grandparents are concerned about the fact that you have been driving an old car to and from campus. They know that you have had some repairs done recently, but they fear that you will have a mechanical breakdown and then who knows what could happen?? They believe that it is time for you to purchase a new car and they want to help. For the past 40 years, Grandma has played bridge with her friend, Dorothy Miller and Dorothy’s granddaughter has recently purchased a Honda Civic. Dorothy thinks that the Honda Civic is a perfect car for a young person ---- both reliable and economical. After speaking with Dorothy, Grandma is convinced. She and Grandpa want to help you buy a new Honda Civic. They will make a $2500 down payment and they will help you with the monthly payments until you graduate. They have requested that you find out how much a Honda Civic will cost, including any special incentives. Also, Grandpa and Grandma know that you are doing very well in your Applied Contemporary Math course, so they are asking you to compute monthly payment options. You have found a new 2022 Honda Civic for $23,350 at a local dealership. The dealership is offering two options:
Option 1: This option includes 1.99% financing for 60 months (we will assume this is a conventional loan).
Option 2: This option includes a $1500 rebate1. Note that in this case, you are not eligible for the loan mentioned in Option 1 and would have to find financing through a local bank or credit union.
1. What would be the principal of the loan if you chose Option 1? (Hint: don’t forget the down payment.)
2. Find the monthly payment if you chose Option 1.
3. Find the total interest paid over the life of the loan if you chose Option 1.
4. Create an amortization table showing all information relating to the first three monthly payments for
Option 1.
5. What would be the principal of the loan if you chose Option 2? (Hint: this option includes both the rebate
and the down payment.)
6. Find the monthly payment if you chose Option 2 and obtained a 5-year conventional loan from the credit
union with an interest rate of 3.98%.
7. Find the total interest paid over the life of the loan if you chose Option 2 + the credit union loan.
8. Compare Option 1 and Option 2. Which of the two options results in a lower monthly payment?
9. Which of the two options results in the least amount of total interest paid over the life of the loan?
10. Which option is best? You must choose either Option 1 or Option 2 and write a few sentences explaining
your choice.
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