I really dont understand how to do this:
A car dealer offers you two deals on a car that costs $16,000. Please calculate the monthly payment, given these two payment options the car dealer is offering.
Payment Option 1: You can finance the car for 60 months with no interest if you make a $3,000 down payment.
Payment Option 2: You can finance the car for 72 months (6 years) with 1% simple annual interest and no down payment. (Hint: To calculate simple annual interest, use the formula Interest = Principal * Rate * Time (in years). Add the amount of interest to the price of the car.)
Which monthly payment amount is lower?
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Payment Option 1:
$16,000 - $1,000 = $15,000 after down payment
$15,000 / 60months = $250/month
Payment Option 2:
$16,000 * 1.02 / 72months = $226.67/month
so 2nd one is better one.
Just solve for the monthly payment options.
Payment Option 1)
You can finance the car for 60 months with no interest if you make a $3,000 down payment. SO:
16,000 - 3,000 = 13,000
13,000 /60 = 216.666
Monthly payment: $216.67
Payment Option 2) You can finance the car for 72 months (6 years) with 1% simple annual interest and no down payment.
16,000 divided into 6 years = 2666.67
Multiply by 1% interest... 0.1 * 2666.67 = 26.67
2666.67 + 26.67 = 2693.34 per year.
Divide that by 12 months. 2693.34 /12 = 224.45
Monthly Payment: $224.45