Question

andiran Dimmer MAT155 - Quantitative Reasoning Fixed Loans Eerd em loon Cars Suppose we want to buy a 2020 Subaru Outback Limited XT. The current price for a well decked-out version is $41,208. We have two options for financing: • 48-months at 4.890%, and • 72-months at 4.740%. a) Compute the monthly payment under each financing option. b) What is the total amount paid under each option?

Answer 1

Answer (a):

(1) Monthly payment under 48 months option:

Loan amount = PV = $41208

Number of monthly payments = nper = 48

Monthly interest rate = 4.890% / 12

Hence:

Monthly payment = PMT (rate, nper, pv, fv, type) = PMT (4.890%/12, 48, -41208, 0, 0) = $946.93915

(2) Monthly payment under 72 months option:

Loan amount = PV = $41208

Number of monthly payments = nper = 72

Monthly interest rate = 4.740% / 12

Hence:

Monthly payment = PMT (rate, nper, pv, fv, type) = PMT (4.740%/12, 72, -41208, 0, 0) = $658.69368

Hence:

Monthly payment under option 1 = $946.94

Monthly payment under option 2 = $658.69

Answer (b):

Total payment over life of loan = 946.93915 * 48 = $45,453.08

Total payment over life loan = 658.69368 * 72 = $47,425.94

Hence:

Total payment under option 1 = $45,453.08

Total payment under option 2 = $47,425.94