Question

1. My wife wants to buy a new Volvo XC90 to haul around our two kids and two cats. A 2020 model costs $65,000 (including taxes and tag). A used 2017 Volvo XC90 costs $45,000. Assume an interest rate of 2.6% and that the entire amount is financed.
   1. What will be our monthly payment on the new model if we take out a 4 year loan? (8 points)

2. What will be the monthly payment on the used model if we take out a 4 year loan? (8 points)

3. If we save the difference between (a) and (b) each month for four years and earn a stated annual rate of 8%, how much money will we have at the end of 4 years? (4 points)

Answer 1

here the interest rate = 2.6%

2.6/1200 = 0.0216

months = 12*4 =48

a.in the case of new model

Monthly payment = 0.0216+ ((0.0216/(1+0.0216)^48)-1) *65000

= 2188.79

b. in the case of used car

Monthly payment =0.0216+ ((0.0216/(1+0.0216)^48)-1) *45000

= 1515.32

difference ( a-b ) = 2188.79 - 1515.32 = 673.47

If we save the difference between (a) and (b) each month for four years and earn a stated annual rate of 8%,the amount will be calculated as follows

first we have to find interest amount

p = 673.47

R = 8%

T = 4

ie, I= 673.47*0.08*4 = 215

the amount =  Difference + interest

= 673.47 +215

= 888.47