Question

A friend is planning to purchase a new car for $35,000 and intends to borrow money to finance the entire purchase. She h...

A friend is planning to purchase a new car for $35,000 and intends to borrow money to finance the entire purchase. She has asked you to compare the following options and to let her know which one you think is best:

option I: $5000 price reduction, plus a four-year loan, with monthly payments. The annual interest rate on the loan will be 5%.

Option II: A zero interest loan, with a 4-year term and monthly payments.

Use formulas and show step by step with calculations

0 0
Add a comment Improve this question Transcribed image text
Answer #1

We need to compare the total payments under the two options

Option 1:

Using financial calculator
Input:

PV = -30000

N= 4*12 = 48

I/Y= 5/12

Solve for PMT as 690.88

Total payments = 690.88*48 = $ 33162.18

Option 2

Since there is no interest, Total payments = amount of loan = 35000

Option 1 is better since the total payments are lesser.

Add a comment
Know the answer?
Add Answer to:
A friend is planning to purchase a new car for $35,000 and intends to borrow money to finance the entire purchase. She h...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • In order to buy a car, you borrow $35,000 from a friend at 12%/year compounded monthly...

    In order to buy a car, you borrow $35,000 from a friend at 12%/year compounded monthly for 4 years. You plan to repay the loan with 48 equal monthly payments. a. How much are the monthly payments? b. How much interest in in the 23rd payment? c. What is the remaining balance after the 37th payment?

  • Assume that you want to borrow $800,000 in order to purchase a new car. As you...

    Assume that you want to borrow $800,000 in order to purchase a new car. As you are a fresh graduate, you can only find one lender, Come-On Finance Limited, willing to grant you an auto loan. In fact, a friend of yours can also give you a helping hand. You are now comparing the following loans under different terms offered by the two parties. Loan 1: Borrow $800,000 from Come-On Finance as an add-on 4% simple interest loan, with quarterly...

  • WUSUI Rei Finance Charges. Bill wants to purchase a new car for $50,000. Bill has no...

    WUSUI Rei Finance Charges. Bill wants to purchase a new car for $50,000. Bill has no savings, so he needs to finance the entire purchase amount. With no down payment, the interest rate on the loan is 8% and the maturity of the loan is six years. His monthly payments will be $876.66. Bill's monthly net cash flows are $686. Bill also has a credit card with a $9,365 limit and an interest rate of 12%. If Bill uses all...

  • In order to buy a car, you borrow $33,000 from a friend at 8%/year compounded monthly...

    In order to buy a car, you borrow $33,000 from a friend at 8%/year compounded monthly for 4 years. You plan to repay the loan with 48 equal monthly payments. What is the remaining balance after the 37th payment?

  • An example is a car purchase where you might pay $3,500 down and borrow $31,000 towards...

    An example is a car purchase where you might pay $3,500 down and borrow $31,000 towards a $34,500 car. If the annual interest rate is 5.45%, you will be making 60 monthly payments and if these payments completely pay off the loan so that no money is due at the end of these payments, what would be the amount of your monthly payment? Assume that the payment is made at the end of each month. Include the equation you used...

  • You are planning to purchase a house that costs $480,000. You plan to put 20% down and borrow the...

    You are planning to purchase a house that costs $480,000. You plan to put 20% down and borrow the remainder. Based on your credit score, you believe that you will pay 3.99% on a 30-year mortgage. Use function “PMT” to calculate your mortgage payment. Use function “PV” to calculate the loan amount given a payment of $1700 per month. What is the most that you can borrow? Use function “RATE” to calculate the interest rate given a payment of $1700...

  • When you borrow money to buy a house or a car, you pay off the loan...

    When you borrow money to buy a house or a car, you pay off the loan in monthly payments, but the interest is always accruing on the outstanding balance. This makes the determination of your monthly payme on a loan more complicated than you might expect. If you borrow P dollars at a monthly interest rate ofras decimal) and wish to pay off the note in months, then your monthly payment M = M(Prt) in dollars can be calculated using...

  • - To buy the new car you want you would need to borrow $35,000. You can...

    - To buy the new car you want you would need to borrow $35,000. You can either borrow: - 2 years at 2.5%/year, - 3 years at 4%/year, 5 years loan at 6.5%/year What are your annual payments for each? Which would you choose? Why?

  • Assume that you are planning on purchasing a new car. You are considering financing the $40,000...

    Assume that you are planning on purchasing a new car. You are considering financing the $40,000 purchase price using a car loan arranged through the car dealership. The terms of the loan are: 8 years of fixed monthly payments, and 2.4% quoted annual periodic rate of interest (this will need to be converted to a monthly rate by dividing the annual rate by 12). Assuming the loan will be completely paid off by the end of the 8 years, determine...

  • You are planning to purchase a new house or condominium to use as your primary residence....

    You are planning to purchase a new house or condominium to use as your primary residence. This assignment will analyze some of the financial aspects of doing so. The final purchase price is $420,000 and, if you need a mortgage from the bank, your down payment will have to be 20% of the purchase price. The mortgage is a 30-year fixed rate loan with an Annual Percentage Rate (APR) of 6.00%. You will incur a one-time closing cost of $6,500...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT