Question

2. You are planning to buy a 2020 Camry XE. Your local dealership has the following offers: i. Option 1: $24,000 cash ii. Option 2: $5,000 down and the balance financed with 72 monthly payments of $425 each at 4% annual interest. (8 points) I. Option 3: Zero down and the balance financed with 72 monthly payments of $550 each at 4.25% annual interest. a) Calculate the present value of each option b) Calculate the interest cost of each option c) Calculate the inters cost percentage (as a percentage of the cash price cost) d) Do you see why car dealerships want you to finance even when you can afford full price?

Answer 1

	Option 1	2	3
Present value	24000	$32,164.91	$34,899.92
Interest	0	8164.91	10899.92
Interest percentage	0	34.02%	45.42%

d: The car dealerships can earn good amount of interest from financing and hence they require thecustomers to finance.

Workings

Book1 - Excel Sign in - 0 X Comments Formulas Data Review View Help Tell me what you want to do Share 23 insert AutoSave @ 01 23HD: File Home Insert Draw Page Layout Calibri - 11 A A = BIU - - A- Clipboard Font A1 = = a b O - Delete Format - - - Paste General $ -% Number - - t 978 Conditional Format as Formatting Table Styles Cell Styles 2 Sort & Find & Filter - Select - Editing Alignment Cells A 2 Present value 3 Interest 4 Interest percentage Option 1 24000 =B2-24000 =B3/24000 =5000+PV(4%/12,72,-425) =PV(4.25%/12,72,-550) =C2-24000 =D2-24000 =C3/24000 =D3/24000