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Alejandra wants to buy a new Ford car. She sees the following ad: 2016 Ford Fiesta 0% APR for 66 mos. Ford Credit Financing OR $2,000 Cash Back Your Texas Ford Dealers Go Further www.GreaterTX.TexasFord.conm 6. She has negotiated a sales price of $14,580 and she has a $1,000 down payment. She is eligible for the full $2,000 cash rebate. Her bank has pre-approved her for a 60-month car loan at 3.20%.1) Now suppose she is only able to get $950 cash back (with the 3.20% financing from her bank). solve for monthly payment and total cost.

2)Suppose Alejandra can only arrange financing at 7.50% instead of 3.20%. The cash rebate remains at $2,000. Does this change her initial decision?

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Answer #1

Effective rate of return per 14580 1000 950 Cost of the car Less: Down payment Less: Cash back Remaining amount to be paid thWe will calculate the total amount to be paid at the end of each month.

nt 1+0.0026 7-1 しーは0 002671 12630 0.00267 whuec the amount tobe at the end eaoh month (inbuot t principe 0 caoh month CintutTotal amount Principle Amount due at the Interest to be paid to be paid a amount paidReaiing end of each at the end of the mo5 は24 2 2 2 210 2 2 2 2 2 220 220 zzi 22 22 25 25 B 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 6: 6 57 55 52 50 41 2 3 4

Question b. As we calculated the total amount to be paid at the end of each month (interest + principle) we will calculate the same with the interest rate of 7.5% (effective rate of interest of 0.0063%).

Interest to Total amount Principle Amount due be paid at to be paid at amount paid Remaining Month at the endo the end of the232.039 92.480 6137.074 31 6329.553 39.560 32 6137.07438.357232.039193.683 5943.391 335943.39 37.14623 2.039 194.893 5748.498

The total cost with interest rate of 7.5% and cash back of $2000 is less than the first case. Therefore, second case will be less costly than the first case.

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