(Annuity payments) Ford Motor Company?s current incentives include 4.2 percent A

Question

(Annuity payments) Ford Motor Company?s current incentives include 4.2 percent APR financing for 96 months or $1,400 Cash back on a mustang. Let?s assume suzie student wants buy the premium mustang convertible, which costs $20,000, and she has no down payment other than the cash back from ford. If she chooses $1,400 cash back, Suzie can borrow from the Vtech Credit Union at 6.2 percent APR for 96 months (Suzie?s credit isn?t as good as prof. Finance). What will Suzie student?s monthly payment be under each option? Which option should she choose?

Explanation / Answer

a) Monthly Payment = pmt(rate,nper,pv,fv)

Monthly Payment = pmt(4.2%/12,96,-20000,0)

Monthly Payment = 245.65

b)

Monthly Payment = pmt(rate,nper,pv,fv)

Monthly Payment = pmt(6.2%/12,96,-18600,0)

Monthly Payment = 246.25

c) Choose Lower interest rate because the monthly payment under this option is lower

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