Question

Using the following information, what is the cost to buy a car? • Down payment $2000 • Monthly loan payment ($300 per month for a 5-year loan) • Opportunity cost of down payment ($2000 x loan period (in years) < 2% interest) • Estimated value of vehicle at end of ownership period ($2,000) Select one: a. $18,000 b. $20,000 c. $18,200 d. $20,200

Answer 1

The cost of the car is computed as shown below:

Down payment: $ 2,000

Monthly loan payment will be as follows:

= $ 300 x 12 x 5

= $ 18,000

Opportunity cost of payment is as follows:

= $ 2,000 x 5 x 2%

= $ 200

So the cost to buy the car will be

= $ 2,000 + $ 18,000 + $ 200 - $ 2,000

= $ 18,200

So the correct answer is option c i.e. $ 18,200

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