2. Craig Morten is a recent business school graduate from the University of Delaware. He just landed a good job & is interested in purchasing a new car. He hasnt started his new job yet & doesnt have any money to put up for a down payment. He believes a 4-5 year old used car is the best approach. He stopped by his bank & they told him he could borrow up to $20,000 at an interest rate of 12% a year for 5 years. One day on the way out to the Phillys game with a friend of his he stops at slippin jimmys car lot. Jimmy has a 5 year old 3-series BMW for sale with 40,000 miles available for $20,000. Craig really liked the car & tried to negotiate the price down but jimmy wouldnt budge. Jimmy did offer him a deal on the financing though 10% a year, saving Craig 2% a year on the amount financed! Jimmy explained his payments would be $500 a month ($20,000 borrowed for 5 years, interest $2,000 a year for a total of $30,000 divided by 60 months = $500 a month). Craig was happy & thought the payment was a good deal lower financing costs are always a good deal! So he drove off the lot happy as can be.

Did Craig get a good deal? Explain.