Question

You are interested in arranging financing to purchase a new car from Bloomington Cars, Inc. The car that you want has a sticker price of $42,000, an instant rebate of $3,500, a fair market value of $39,000, and a great sound system. The salesperson, while smoothing over his comb-over, taps his pinky ring on the hood of the car and tells you, “You picked the best car we have. I can also kick in a free Bloomington Cars coffee mug.” Since you love the car, you hop up and down and say, “Sold! I’ll take it.” You sign a loan contract for 60 monthly payments based on a rate of 7.3% per year and drive home with your new car and coffee mug, listening to that great sound system. (Your market rate of return for the risks you pose for a car loan is 5.5%.)

What is your monthly payment (rounded to two places)?

Group of answer choices

$802.25

$777.78

$767.81

$707.98

None of the above

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Question 21 pts

How much value did you destroy in pursuit of that great sound system and your free coffee mug (rounded to two places)?

Group of answer choices

$499.86

$1,197.03

$3,000.06

$2,324.09

None of the above

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Question 31 pts

What would have been a “fair” monthly payment (rounded to two places)?

Group of answer choices

$744.95

$837.61

$735.39

$767.43

None of the above

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Question 41 pts

Based on Questions #1 and #3, how much are you overpaying each month (rounded to two places)?

Group of answer choices

$26.82

$17.46

$8.24

$32.87

None of the above

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Question 51 pts

If you come to your senses in 12 months and realize what a bad deal you negotiated and would like to pay off this bad loan, how much do you owe (rounded to two places)?

Group of answer choices

$36,854.88

$33,014.89

$8,859.51

$31,878.28

None of the above

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Question 61 pts

How much interest will you pay in the first year of the loan (rounded to two places)?

Group of answer choices

$9,213.72

$2,592.00

$6,621.72

$3,452.28

None of the above

Answer 1

Please see the table below. Please be guided by the second column titled “Formula used” to understand the mathematics. The cells highlighted in yellow contain your answer. Figures in parenthesis, if any, mean negative values. All financials are in $.