You are interested in arranging financing to purchase a new car from Bloomington Cars, Inc. The car that you want has a sticker price of $42,000, an instant rebate of $3,500, a fair market value of $39,000, and a great sound system. The salesperson, while smoothing over his comb-over, taps his pinky ring on the hood of the car and tells you, “You picked the best car we have. I can also kick in a free Bloomington Cars coffee mug.” Since you love the car, you hop up and down and say, “Sold! I’ll take it.” You sign a loan contract for 60 monthly payments based on a rate of 7.3% per year and drive home with your new car and coffee mug, listening to that great sound system. (Your market rate of return for the risks you pose for a car loan is 5.5%.) If you come to your senses in 12 months and realize what a bad deal you negotiated and would like to pay off this bad loan, how much do you owe (round the payments to two places and then round your final answer to two places)? How much interest will you pay in the first year of the loan (round the payments to two places and then round your final answer to two places)?
You are interested in arranging financing to purchase a new car from Bloomington Cars, Inc. The car that you want has a sticker price of $42,000, an instant rebate of $3,500, a fair market value of $39,000, and a great sound system. The salesperson, while smoothing over his comb-over, taps his pinky ring on the hood of the car and tells you, “You picked the best car we have. I can also kick in a free Bloomington Cars coffee mug.” Since you love the car, you hop up and down and say, “Sold! I’ll take it.” You sign a loan contract for 60 monthly payments based on a rate of 7.3% per year and drive home with your new car and coffee mug, listening to that great sound system. (Your market
If you come to your senses in 12 months and realize what a bad deal you negotiated and would like to pay off this bad loan, how much do you owe (round the payments to two places and then round your final answer to two places)?
How much interest will you pay in the first year of the loan (round the payments to two places and then round your final answer to two places)?
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