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Personal Finance 1st Edition by Jack R. Kapoor
Edition 1ISBN: 1308231393Personal Finance 1st Edition by Jack R. Kapoor
Edition 1ISBN: 1308231393Calculating the Total Cost of a Purchase, the Monthly Payment, and an APR. After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $10,000 price, but financing through the dealer is no bargain. He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $8,000 for a period of four years at an add-on interest rate of 11 percent. What is the total interest on Richard’s loan? What is the total cost of the car? What is the monthly payment? What is the annual percentage rate (APR)? (Obj. 2)
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Step 1 of 4
First we have to calculate the total cost of purchase, the monthly payment and the APR.
Calculate the total cost of purchase: To calculate the total cost of purchase, we have to calculate the total cost of interest.
Given:
| Price | $10,000 |
| Cash Payment | $2,000 |
| Loan | $8,000 |
| Period | 4 Years |
| Add-on Interest rate | 11% |
| Total interest | ? |
| Total cost | ? |
| Monthly payment | ? |
| Annual percentage rate | ? |
Substitute:
Therefore, the total interest is $3,520
Step 2 of 4
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Step 4 of 4
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