Topic_04_E2(1).doc

Topic 4, Exercise 2 Comparing Auto Loan Alternatives You are considering the purchase of new car. You have negotiated with the salesperson at the dealership and you can purchase the vehicle for $30,000. You have $8,000 that you can use as a down payment. Prior to going into the dealership, you have set an absolute limit of $375 for the amount of monthly payments that you can make on the car. You are willing to finance over five years but you cannot exceed the payment of $375 per month. The dealer is willing to offer you financing at an annual rate of 6.5% for a 5-year loan. The dealer is willing to offer 5.5% financing on a 4-year loan. CalculatorWeb's loan calculator lets you specify any single item to calculate if the other four variables are specified. The value should be entered as whole numbers without commas. Instructor’s Note: Refer to the actual Web page for this exercise to see the accompanying tables showing the calculator inputs for the answers below. 1. Can you meet your payment restriction and finance the amount required for the car? No, the payment exceeds your maximum target. The loan would require a payment of $430.46. 2. What is the maximum amount that you can borrow to meet your payment restriction if the loan is to be paid off in 5 years? The maximum that you can borrow is $19, 165.75. 3. Suppose that you are limited to paying $375 per month but you want to pay the loan off in 4 years and not 5 years. What is the maximum amount that you can borrow? The maximum that you can borrow is $16,124.54.