Helen wants to buy a car at the cost of $27650. She will provide the down payment of $12,500 and borrow the rest. She has three option of financing.

1. The car dealer has offered 48-month financing at 8.5% compounded monthly.
2. The credit union has offered 36-month financing at 9% compounded quarterly. It has also offered 48-month financing at 9.3% compounded quarterly.
3. The bank has offered 36-month financing at 8.8% compounded semi-annually. It has also offered 48-month financing at 9.1% compounded semi-annually.

Question 1. Suppose Helen wants to pay off her car loan in 3 years. How much interest will Helen save by choosing the better option? Use the following notations or formulas.

Compound Interest Formula FV In FV = PV(1+i)" PV = FV (1+i)" PV In(1+i) Finding an Equivalent Rate n= FV PV -1 Effective Rate n=- j 7M 1+ = 1+ 1 = 1+ -1 f =(1+i)"-1 m m2 m2 Future Value of an Ordinary Annuity ix FV (1+i)"-1 In 1+ FV = PMT PMT In (1+i) Present Value of an Ordinary Annuity ixPV 1-(1+i) -In 1- PV = PMT PMT n= In(1+i) Future Value and Present Value of an Annuities Due (1+i)" -1 1-(1+i)"] = PMT (1+i) PVDUE = PMT (1+i) i FV = DUE