A financial institution in your community is advertising “Simple Interest Car Lo

Question

A financial institution in your community is advertising “Simple Interest Car Loans”. Here is their ad.

“Looking for an attractive loan for the car of your dreams? Well, you have to look no more. Come in and show us your car deal. We will match any car loan and reduce the interest rate by 1%, with our “simple interest car loan”. No down payment needed, and no trade-ins. Our loans must have a minimum interest rate of .5%.”

DREAM CAR: JAGUAR 2010 S-TYPE- Used TMV from $23,961
1.For the purpose of this exercise, you can ignore sales tax.
2.Determine the annual interest rate for your loan using information from a local bank or an internet ad. Reduce this rate by 1%. This is r expressed as a decimal.
3.Decide the time, in years, you wish to repay the loan (typically, 3-7 years, half years are ok). This is t.
4.Determine the interest on your loan, using the formula:
interest = sale price*rate*time, (I = prt).
5.Determine the total cost of your loan, using the formula:
Total cost = (sale price*rate)time + Sale Price
6.Model the total cost as a linear function, with time as the independent variable:
F(t) = (pr)t + p.
7.Divide the total cost by the number of months, to determine the monthly payment.
8.Repeat steps 4 & 5 to determine the cost of the loan if the interest rate had not been reduced by 1% – how much money did you save?
9.Summarize your findings by writing a brief statement that includes the pertinent information from the steps above; rates, totals, savings, etc

Explanation / Answer

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