Assume the car can be purchased for 0% down for 60 months (in lieu of rebate).

Question

A car with a sticker price of $42,650 with factory and dealer rebates of $5,100

a-Find the monthly payment if financed for 60 months at 0% APR. (Round your answer to the nearest cent.

b-Find the monthly payment if financed at 2.5% add-on interest for 60 months. (Round your answer to the nearest cent.

c-Use the APR approximation formula to find the APR for part (b).

(d) State whether the 0% APR or the 2.5% add-on rate should be preferred.
0% APR or 2.5% add-on rate

Answer 1

a. (42,650-5100)/60 = %625.83/mo.

b. P = (Po*r*t)/(1-(1+r)^-t)

Po = 42,650-5100 = 37550

r = (2.5%/12)/100% = 0.00208

t = 60 Months.

Plug the above values into the given Eq and get:
P = $39,984.81

39984.81/60mo = $666.41/mo. = Monthly payments.

c. I = (39984.81-37550)/5yrs = $486.96/
yr.

APR = (486.96/37550)*100% = 1.30%