(c)Assume your car will lose 30% of its market value the first year and further

Question

(c)Assume your car will lose 30% of its market value the first year and further lose $4,000 each year thereafter (i.e. by the end of the first year, your used car can will be sold for $25,000 × (1-30%) = $17,500 on the used car market; and will be sold for $17,500-$4,000=$13,500 on the used car market by the end of year 2; and so on).How much will your used car be worth by the end of year 3 and year 4? Please fill the used car value in the market value schedule.

(d)With auto loans, it is common for buyers to trade in their cars after the outstanding principal on the car loan exceeds the re-sale value of the used car. After which loan payment will it be profitable for you to trade-in your car? Why? (hint: the car should be sold if it can be sold for more than the balance owed to the dealer)

Explanation / Answer

Year 1 = 25000*0.70 i.e 17500

Year 2 = 17500-4000 i.e 13500

Year 3 = 13500-4000 i.e 9500

Year 4 = 9500-4000 i.e 5500

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