Page 36: Christina is trying to buy a car for $23,599.
Finance Option 1 (#1-2 on page 36) is a 3 year loan at 5.99% with 10% down payment.
Down payment is 10%. 10% = 0.10. 0.10*23599 = $2359.90
Loan amount = 23599 - 2359.9 = $21239.10
OR, 0.9*23599 = $21239.10. Either way is the same answer.
The LOAN AMOUNT goes in the Finance App as "PV"
N = 3*12
I% = 5.99
PV = 21239.10
PMT = X
FV = 0
P/Y = 12
C/Y = 12
END
Using the Finance App, her payment would be $646.04
Question 2: Depreciation. After 3 years, the car is worth only $14,250.
Total cost of car: N*PMT + Down Payment - Value of car at payoff (when loan is paid)
3*12*646.04 + 2359.9 = $25,617.34
At the end of the 3 years, the car is worth (can be sold for) $14,250.
$25617.34 - $14250 = $11,367.34
Finance Option 2 (#3 on page 36) is a 0% down and 0% APR for two years.
N = 2*12I% = 0
PV = 23599
PMT = X
FV = 0
P/Y = 12
C/Y = 12
END
Under these conditions, her monthly payment would be $983.29.
Total Cost = 2*12*983.29 + 0 - value of car at 2 years
= $23,598.96 - $17,629 (given in the packet) = $5969.96.
Christina should take option 2, IF SHE CAN AFFORD IT, because the total cost is about 1/2 of option 1. But, it is a very high monthly payment, which many people can't afford.
Finance Option 3 (#4-5 on pages 36-37) is a LEASE at $349 per month with a BALLOON PAYMENT of $1200 at the end of 3 years.
In a lease, you DO NOT own the car at the end! It's basically a long-term rental.Total Cost = 3*12*349 + 1200 = $13,764
Question 5: Is she being charged interest?
N = 3*12
I% = X
PV = 23599
PMT = -349
FV = -14250 (value of the car after 3 years, which is given in #2 on page 36)
P/Y = 12
C/Y = 12
END
From the Finance App, I% = 5.586% (not even including the balloon payment at the end).
Should she take it? Maybe, if that's the only way she can afford to have a car. But there's no long-term payoff - you don't own the car at the end, so the total cost is the highest.
Option 4: (#6 on page 37) Lease to purchase (a LEASE, but with the option to buy at the end). APR = 1.9%, 3 years. At the end, she can pay the depreciated value, or walk away for a fee of $150.
N = 3*12I% = 1.9
PV = 23599
PMT = X
FV = -14250
P/Y = 12
C/Y = 12
END
Payment = $289.93 each month.
Total Cost = 3*12*289.93 = $10,437.48
Now, either she walks away: $10437.48 + 150 = $10,587.48 total cost (and no car!), OR
She pays for the depreciated value:
10,437.48 + 14250 (she pays) - 14250 (because she keeps the car) = $10,437 total cost.
New Homework:
You were already responsible for pages 40, 41, and 42. Now, you also need to complete pages 43 and 44. Turn in all 5 pages next time.