You need to purchase a car, but don’t have the money to buy it outright. Therefore, you’ll have to borrow money for a loan. Your current situation is this: • The car you want to buy costs $11,999 • You have $5500 saved for a down payment on the car.

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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Question

You need to purchase a car, but don’t have the money to buy it outright. Therefore, you’ll have to borrow money for a loan. Your current situation is this:
• The car you want to buy costs $11,999
• You have $5500 saved for a down payment on the car.
• The dealer offers add-on interest loans for 7% per year, for 1, 3, or 5 years.
• You want to keep your car payments under $250 per month.
(a) Calculate the monthly payments for 1, 3, or 5 years. Can you afford any of these loan terms?
Explain.
(b) Compute the total interest you’ll pay over the life of each loan

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