Suppose that you decide to buy a car for $59,000, including taxes and license fe

Question

Suppose that you decide to buy a car for $59,000, including taxes and license fees. You saved $13,000 for a down payment. The dealer is offering you a choice between two incentives. Incentive A is $4000 off the price of the car, followed by a four-year loan at 5.26%. Incentive B does not have a cash rebate, but provides free financing (no interest) over tour years. What is the difference in monthly payments between the two offers? Which incentive is the better deal? The difference in monthly payments between the two offers is $ 13.85. (Round to the nearest cent as needed.) Which incentive is the better deal? Choose the correct answer below. A. Incentive B is the better deal. B. Incentive A is the better deal.

Explanation / Answer

required loan = 59000 - 13000

= 46000

option A

loan amount = 46000 - 4000 = 42000

=>

42000 = x * [1-(1+5.26%/12)^-48]/5.26%/12

=>

monthly payment x = 972.19

option B

monthly payment = 46000/48 = 958.33

difference = 972.19 -958.33 = 13.86

hence incentive B is a better deal

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