Ch 05: Assignment - Making Automobile and Housing Decisions Before buying a car, It is critical that you determine both the complete price of the vehicle and what you can afford to spend. This informatic essential in deciding whether to pay cash or finance the vehicle with a loan. The difference between these two methods of payment, howeve difference between paying the car's full price versus making a much smaller down payment and fitting the monthly payments into your budg There are two schools of thought about how much car you can afford. Financial experts recommend that the amount of your car payment sho exceed 20% of your net monthly income. Others suggest that if you can accommodate the payment in your budget, then It's acceptable-aith you shouldn't obligate yourself to eating rice cakes for the next four years. Kevin is 55 years old, and his current gross monthly income is $2,600. Given an average personal tax rate of 30% for his federal, state, and I taxes, Kevin's net monthly income is If he follows the advice of financial experts, what is the maximum amount that he should to purchase a new vehicle? (Note: Ro panswers to the nearest whole dollar.) $3,640 O $1,820 $1,820 O $1,092 $2,600 $364 An alternative to the 20% rule is to evaluate your budget, determine a monthly payment that you can reasonably afford, and then incorporatet information with the maturity and interest rate of a possible loan to determine the value of the potential loan. When this value is added to a save amount of a down payment, you know the total amount that you can reasonably afford to spend on a new car. To review this process, consider the following case: Kevin's Car-Buying Decisions Kevin, who lives in San Francisco, is trying to decide between the following car models: Brand and Model Cost Kia Rio $12,295 16,780 Jeep Patriot Chevrolet Camaro 26,305 Housing Decisions Chevrolet Camaro Ford F-150 Pickup 26,305 27,690 He's currently accumulated a down payment of $5,000 and he has determined that he can afford maximum payments of $375 per month. His initial research on the current cost of auto loans has found that his lowest cost loan would be made by a savings and loan association and would require an Interest rate of 6% for four years. Given this information, the maximum amount that Kevin can afford to pay for his new car is afford to purchase, without stretching his budget, is: and the most expensive car that he can The Jeep Patriot The Chevrolet Camaro The Ford F-150 Pickup The Kia Rio However, he could upgrade to a more expensive model by undertaking several activities. Which of the following activities would allow this upgrade? Check all that apply Purchase the more expensive car now and figure out later how to pay for it Take a better paying job or another, or part-time job that would give him the additional income to support a larger monthly payment Purchase an upgraded vehicle with fewer and less expensive options Postpone his purchase until he can save more money for a larger down payment Grade it Now Save & Continue
