Reference no: EM132926188

Questions -

Q1. Kia is offering customers their choice of 0.9% APR financing for 60 months or $1,500 cash back price reduction on a $14,000 car. What APR with the $1,500 cash back price reduction option would you need to be indifferent between the two options if you plan to put down no additional money toward the car's $14,000 purchase price?

Q2. Mr. and Mrs. MBA are planning to purchase a $200,000 house and have $40,000 as a down payment towards their purchase. The MBAs are considering two 30-year home mortgage loan options. The first option is 6.25% APR financing with no points. The second option is 5.9% APR financing that requires 1.5% (or 1.5 points) of the loan amount be paid up front in order to secure this lower finance rate for the entire needed loan amount. (If the MBAs decide to go with the second option, they would pay the 1.5 points up front on top of their down payment.) Answer the following:

(a) What is the MBAs monthly payment for each loan?

(b) Ignoring the time value of money, how many months would the MBAs have to stay in their house to break even on the points they would pay on the second loan option vs. the no-point first loan option?