Question

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1. The retail price of a car is $35 000. Haruna is considering two options: to lease or finance the car. If he leases, he will pay a $5 000 down payment. The interest rate is 2.9% compounded monthly for 36 months. The car has a residual value of $18 000. If he finances, the interest rate is the same but the term is 5 years and he will pay 10% of retail price as down payment.

   1. a) What will Haruna’s monthly payment be if he leases?

   2. b) What will the monthly payment be if he finances the vehicle?

   3. c) How much will he have paid in total if he purchases the vehicle at the expiration of the lease?

   4. d) How much will he have paid in total if he finances the vehicle?

2. You have just graduated from college, and to celebrate you have decided to ditch your old, beat-up car for a brand new Hyundai Accent. The cost of the car is $15 000 at an interest rate of 1.9% compounded monthly for 4 years. The dealership is offering a $1500 graduate rebate on your purchase.

   1. a) How much is your monthly payment?

   2. b) You have decided that your monthly payment is too high. How much should you deposit as a down payment in order to lower your payment by $100 each month?

Answer 1

a) in case he leases
$5000 has been given as a down payment. Therefore, the monthly payment would be:

b) in case he finances
$3500 has been given as a down payment. Therefore, the monthly payment would be:

c) Total payment in case of leasing:

d) total payment in case of financing

After Graduation:

a) monthly payment:

b) total down payment to be made to reduce the monthly payment by $100:

If the total loan is taken of $8,861.60 then he would see a $100 reduction in the monthly payment and as the original loan he was going to take was of $13,500 (15,000 - 1,500), the amount that needs to be given as a down payment will be old loan amount - new loan amount = $4,618.40.