Question

Ursula wants to buy a $19,000 used car. She has savings of $2,000 plus an $800 trade-in. She wants her monthly payments to be about $282 . Which of the following loans offers monthly payments closest to $282 ?A) 78% APR for 48 months.B) 78% APR for 60 months.C) 7.8% APR for 72 months.D) 7.8% APR for 36 months.

Answer 1

Answer:

Explanation:

Ursula needs $19,000 or in other words FV (Future value)

She has savings of $2000 and trade in of $800 or in other words she has $2800. She needs to borrow $16200 (19000-2800)

Also, she wants monthly payment to be $282. To find which answer fits best, let's check each of them.

A) APR =78% or mothly rate of 78/12 = 6.5%; 48 months

Using financial calculator:

Rate = 6.5%

n = 48

PV = $16200

Find PMT? PMT = 11068

This is not the right answer

B) APR = 78%, monthly rate=6.5%

n = 60

PV = $16200

Find PMT? PMT = 1077.6

This is not the right answer

C) APR = 7.8%; monthly 0.65%

n =72

PV = $16200

Find PMT? PMT = 282.4

This is the correct option

Answer is - C

Answer 2

Answer:

C) 7.8% APR for 72 months.

Explanation:

we can use an excel spreadsheet and the payment function:

=PMT (rate,nper,pv)

we are given the:

• present value of the principal = $19,000 - $2,000 - $800 = $16,200

we must choose between 4 alternatives:

• 78% APR; 48 MONTHS: we need to replace rate and nper in the function =PMT (6.5%,48,-16200) = $1,107
• 78% APR; 60 MONTHS: we need to replace rate and nper in the function =PMT (6.5%,60,-16200) = $1,077
• 7.8% APR; 72 MONTHS: we need to replace rate and nper in the function =PMT (0.65%,72,-16200) = $282
• 7.8% APR; 36 MONTHS: we need to replace rate and nper in the function =PMT (0.65%,36,-16200) = $506