Equal monthly payments of compound interest and principal

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Reference no: EM13974523

Problem Statement: Jeff wants to purchase a new automobile. The one he has selected will cost $25,000 including all fees (e.g., tax, title, and licensing). Jeff has saved $10,000 to use as a down payment. He plans to finance the balance though a loan. Jeff has the option to seek financing from his local bank or directly from his car dealer. The loan would be a conventional consumer loan with equal monthly payments of compound interest and principal. Car Dealer Financing The car dealership advertises a special financing promotion: 1.9% financing for 24-36 months OR 3.9% financing for 37-60 months. c) Compute the monthly payment for both a 36 month loan and 60 month loan. d) The car company claims in their advertising that if you select the 36 month loan over the 60 month loan you will save over $1100 in total interest paid. Does this make sense? What would you advise Jeff to do? Why? (Hint: consider the opportunity costs in relationship to the inflation rate and MARR.)

Reference no: EM13974523

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