Question 1: The Save-Your-Bucks used car dealer offers the following automobile

Question

Question 1:

The Save-Your-Bucks used car dealer offers the following automobile finance opportunity. Monthly payments on the loan are 3% of the loan amount for 36 months. The loan amount is after any down payment. In addition the loan will require a $1,500 up front loan processing fee that is not included in the loan.

a. For a loan of $20,000, what is the APR with monthly compounding without the up front fee

b. For a loan of $20,000, what is the APR with monthly compounding with the inclusion of the up front fee?

Question 2:

Shaum is considering whether to invest monthly, quarterly or annually in a fund that earns 7% APR with monthly compounding. How much will Shaum accumulate in 30 years for each of the three investment alternatives shown below? Assume that months are equal in length and that there is no initial deposit in year 0.

Years 30 APR 7.00% Monthly Compounding Alternative Payments a Monthly $500 b Quarterly $1,500 c Annually $6,000

Explanation / Answer

Question 1

a) monthly interest for the loan is 0.422% and APR is 0.422*12 = 5.06%

b) monthly interest for the loan is 0.86% and APR is 0.86*12 = 10.35%

Question 2

a ) $ 609,985

b) $ 606,441

C)$ 590,661

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