Suppose you are in the market for a new car worth $22,000. You are offered a dea

Question

Suppose you are in the market for a new car worth $22,000. You are offered a deal to make a $2000 down payment now and to pay the balance in equal end-of-month payments of $505.33 over a 48-month period. Consider the following situations. (a) Instead of going throught the dealer's financing, you want to make a down payment of $1,800 and take out an auto loan from a bank a 9.2% compounded monthly. What would be your monthly payment to pay off the loan in four years? (b) If you were to accept the dealer's offer, what would be the effective rate of interest per month the dealer charges on your financing?

Explanation / Answer

You have just taken out a five-year loan from a bank to buy an engagement ring. ... Your brother has offered to give you either $5000 today or $10,000 in 10 years. ... Suppose you invest $1000 in an account paying 8% interest per year. a. .... payments in lieu of making one large payment at the end of the loan's term in three

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