Do the Math 8-4 Rebate Versus Low Interest Rate Kyle Parker of Concord, New Hamp
ID: 2615965 • Letter: D
Question
Do the Math 8-4
Rebate Versus Low Interest Rate
Kyle Parker of Concord, New Hampshire, has been shopping for a new car for several weeks. He has negotiated a price of $39,000 on a model that carries a choice of a $2,500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1,000 down payment and a monthly payment of $666 for 60 months. Kyle has also arranged for a loan from his bank with a 5 percent APR. Use the Run the Numbers worksheet to advise Kyle about whether he should use the dealer financing or take the rebate and use the financing from the bank. Round your answer to two decimal places.
Adjusted APR (dealer financing): __________%
Kyle should use
Select-the dealer financing or financing from the bank .
Explanation / Answer
Rebate and Financing
Cost of Car
39,000
Rebate
2500
Loan Amount
36,500
Interest cost
5%
Term
60 months
Monthly Interest
0.08333%
Monthly EMI
$623.92
Dealer Financing
Cost of Car
39000
Down Payment
1000
Loan Amount
38000
Monthly EMI
$666.00
I have used the excel PMT function to calculate the monthly EMI for rebate. As can be seen taking the rebate amount and financing from the bank for 60 months is a better option
Cost of Car
39,000
Rebate
2500
Loan Amount
36,500
Interest cost
5%
Term
60 months
Monthly Interest
0.08333%
Monthly EMI
$623.92
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