Question

Tess is going to purchase a new car that has a list price of $29,190. She is planning on trading in her good-condition 2006 Dodge Dakota and financing the rest of the cost over four years, paying monthly. Her finance plan has an interest rate of 10.73%, compounded monthly. Tess will also be responsible for 7.14% sales tax, a $1,235 vehicle registration fee, and a $97 documentation fee. If the dealer gives Tess 75% of the listed trade-in price on her car, once the financing is paid off, what percent of the total amount paid over four years would be interest? (Consider the trade-in to be a reduction in the amount paid.)
Dodge Cars in Good Condition
Model/Year
2004
2005
2006
2007
2008
Viper
$7,068
$7,225
$7,626
$7,901
$8,116
Neon
$6,591
$6,777
$6,822
$7,191
$7,440
Intrepid
$8,285
$8,579
$8,699
$9,030
$9,121
Dakota
$7,578
$7,763
$7,945
$8,313
$8,581

a.
21.39%
b.
19.15%
c.
23.43%
d.
18.98%



Please select the best answer from the choices provided


A
B
C
D

Answer 1

D

Work (brief):
- Trade-in = 0.75(7945) = $5,958.75.
- Total to finance = 29,190 + 0.0714(29,190) + 1,235 + 97 − 5,958.75 = $26,647.42.
- Monthly rate = 0.1073/12 = 0.0089416667, n = 48. Monthly payment = L·[i/(1−(1+i)^−n)] ≈ $684.52.
- Total paid = 48·684.52 ≈ $32,856.91. Interest = 32,856.91 − 26,647.42 = $6,209.49.
- Percent interest = 6,209.49 / 32,856.91 ≈ 0.189 ≈ 18.98% → choice D.