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Example: buying a new car with a price of $20,000, with two financing options:
1.9% financing (60 months) from car dealer
$2,500 rebate, then 10% (60 months) financing from your bank
Which option should you choose?
12.
$2,500 rebate Find monthly payment 17,500 +/- PV 10 I/YR 60 N PMT $371.82 1.9% financing Find monthly payment 20,000 +/- PV 1.9 I/YR 60 N PMT $349.68 1.9% financing is the better deal because of the lower monthly payments.
13.
If we take the $2,500 rebate, we would need to borrow: $20,000 – $2,500 = $17,500 from the bank. If we were to make a monthly payment of $349.68, we would need to borrow from the bank: $349.68 PMT 10 I/YR 60 N PV $16,458 1.9% financing is the better deal because it represents a lower cost in present value .
Calculate the finance charges and APR on a $1000 loan to be repaid in 12 monthly installments at an annual interest rate of 12% . (Assume interest is the only finance charge.)
Use Exhibit 7.6 (Table calculated using $1000 loan) Find payment for 12 months at 12% interest: $88.85 [Note: We can use a spreadsheet to create the following table.]
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