Duncan is about to buy a new car for $25,000 from Nina’s Beaters
and Lemons used car lot. Nina has given Duncan two options:
a. An monthly installment loan for the full amount for a term of 5
years at 3.9%; or
b. Pay cash plus a blueberry fritter and she will give him an
instant cash rebate of $3,000. Duncan knows that he can borrow the
money from Ryan’s Rip-Off Finance company at a rate of 9% for 5
years.
Which option should he take and why? Show your work!
(A) Monthly installment of loan
monthly interest rate = 3.9%/ 12 = 0.325%
period = 12 * 5 = 60 months
price of car = $ 25000
Monthly installment of loan = price of car / PAVF ( 0.325% , 60 month )
= $ 25000 / 54..4323
= $ 459.29
total payment in this option = 60* $ 459.29 = $ 27557.4
(B) if borrow the fund and instant payment with discount $ 3000
car price = $ 2500 - $ 3000
= $ 22000
she has to borrow $ 22000 @ 9% interest rate
yearly interest payment = $ 22000 * 9% = $ 1980
in this option total payment = $ 22000 + $ 22000 * 9% * 5 years
= $ 22000 + $ 9900
= $ 31900
here it can be said that option 1 is better there is less payment i.e $ 27557.4 which is less than $ 31900.
Duncan is about to buy a new car for $25,000 from Nina’s Beaters and Lemons used...