Dear Guru,

Please guide me the solution of TVM Questions

Q1 Kia is offering customers their choice of 0.9% APR financing for 60 months or $1,500 cash

back price reduction on a $14,000 car. What APR with the $1,500 cash back price reduction

option would you need to be indifferent between the two options if you plan to put down no

additional money toward the car's $14,000 purchase price?

Q2 . Mr. and Mrs. MBA are planning to purchase a $200,000 house and have $40,000 as a down

payment towards their purchase. The MBAs are considering two 30-year home mortgage

loan options. The first option is 6.25% APR financing with no points. The second option is

5.9% APR financing that requires 1.5% (or 1.5 points) of the loan amount be paid up front in

order to secure this lower finance rate for the entire needed loan amount. (If the MBAs

decide to go with the second option, they would pay the 1.5 points up front on top of their

down payment.) Answer the following:

(a) What is the MBAs monthly payment for each loan?

(b) Ignoring the time value of money, how many months would the MBAs have to

stay in their house to break even on the points they would pay on the second loan

option vs. the no-point first loan option?