3. Loan Interest. Sharon is considering the purchase of a car. After making the down payment,...

3. Loan Interest. Sharon is considering the purchase of a car. After making the down payment, she will finance $11,450.00. Sharon is offered 3 maturities. On a four-year loan she will pay $284.93 per month. On a five-year loan, Sharon’s monthly payment will be $237.68. On a six-year loan they will be $206.39. Sharon rejects the four-year loan, as it is not within her budget. How much interest will Sharon pay over the life of the five-year loan? Of the six-year loan? Which should she choose if she bases her decision solely on interest paid?

The amount of interest on the five-year loan is ___
The amount of interest on the six-year loan is _______
She should choose the __________ loan based on total interest paid.
What would be a valid reason for choosing the other loan option? ______________.

Solutions

Expert Solution

Total Interest = Total payment - Amount borrowed

5 year loan = 237.68*5*12 - 11,450

= $2,810.8

6 year loan = 206.39*12*6 - 11,450

= $3,410.08

5-year loan based on total interest paid

Lower monthly payments would be the reason for choosing the other option i.e. 6 year loan

jeff jeffy answered 2 years ago

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