Question

Financial Planning Exercise 8 Calculating payments, interest, and APR on auto loan After careful comparison shopping, Isabella Green decides to buy a new Toyota Camry. With some options added, the car has a price of $22,500 - including plates and taxes. Because she can't afford to pay cash for the car, she will use some savings and her old car as a trade-in to put down $7,500. She plans to finance the rest with a $15,000, 60-month loan at a simple interest rate of 8.5 percent. What will her monthly payments be? Round the answer to the nearest cent.

$____ per month

How much total interest will Isabella pay in the first year of the loan? Round the answer to the nearest cent.

$________

How much interest will Isabella pay over the full (60-month) life of the loan? Round the answer to the nearest cent.

$_______

What is the APR on this loan? Round the answer to 1 decimal place.

_______%

Because of a job change, Finn McBryde has just relocated to the southeastern United States. He sold his furniture before he moved, so he's now shopping for new furnishings. At a local furniture store, he's found an assortment of couches, chairs, tables, and beds that he thinks would look great in his new, two-bedroom apartment; the total cost for everything is $5,000. Because of moving costs, Finn is a bit short of cash right now, so he's decided to take out an installment loan for $5,000 to pay for the furniture. The furniture store offers to lend him the money for 48 months at an add-on interest rate of 9 percent. The credit union at Finn's firm offers to lend him the money - they'll give him the loan at a simple interest rate of 11.5 percent, but only for a term of 18 months.

Compute the monthly payments for the loan from the credit union. Round the answer to the nearest cent.
$_____ per month

Determine the APR for the loan from the credit union. Round the answer to 2 decimal places.
______%

Compute the monthly payments for the loan from the furniture store. Round the answer to the nearest cent.
$____ per month

Determine the APR for the loan from the furniture store. Round the answer to 2 decimal places.
____ %

Which is more important: low payments or a low APR?

Answer 1

Answer:Part A

Car price =$22500

Old car =$7500

She needs to pay $15000

●Calculation of simple interest :

Loan period(T) =60months=5 years

Rate of interest(R)=8.5%

Principal(P)=$15000

Simple Interest =PTR/100

=$15000×5×8.5/100

=$6375

1.Total monthly payments:

Total payment to be made=$15000 +$6375

=$21375

=$21375/60 months=$356.25 per month

  

2.Interest to pay on first year loan:

=P × 1 ×R/100

=$15000×1×8.5/100

=$1275

3.Total interest to pay :

=$6375

4.APR on the Loan:

-No finance charges charges included.

Hence APR is the simple interest rate ,

APR is 8.5%

Part B:

●Calculation of Simple Interest for Credit union

=PTR/100 =$5000×1.5×11.5/

=$862.5

Total payment to be made =$5000 + $862.5

=$5862.5

1. Monthly payment =$5862.5/18=$325.7

2.APR =SI=11.5%(as there is no finance charges)

●Calculation of simple interest for furniture store

=PTR/100=$5000×4×9/100=$1800

Total payment to be made =$5000 + $1800

=$6800

1.Monthly payments=$6800/48=$141.7

2.APR =SI=9%(as there is no finance charges)

●APR is important,As it will provide a much clearer picture of how much the loan will actually cost you in the end.

low monthly payment may fit into only budget