Question
Harry is contemplating a purchase of a new car, which he will keep for 10 years. The car costs $40,000 today. He will have to
Harry is contemplating a purchase of a new car, which he will keep for 10 years. The car costs $40,000 today. He will have to insure the car for $150 per month for the full 10 years (starting 1 month from today). He also anticipates spending a total of $500 per year in maintenance on the car starting 6 years from today and continuing through 10 years from today. Both $150 and $500 are real terms, but will grow nominally at the rate of inflation. At a nominal monthly compounded APR of 9% (assume that inflation is 3.0% APR, compounded monthly), what is the true total cost of the car?
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