Question 1

a) You are planning to buy a car worth $20,000. Which of the two deals described below would you choose, both with a 48-month term? the dealer offers to take 10% off the price, and lend you the balance at an APR of 9%, monthly compounding. the dealer offers to lend you $20,000 (with no discount) at an APR of 3%, monthly compounding.

b) You have just taken a 25-year mortgage loan for $200,000. The annual percentage rate on the loan is 8%, compounded semi-annually, and payments will be made monthly. Estimate your monthly payments. Suppose that exactly 4 years from now you renegotiate your mortgage loan. If rates at that time on the remaining life of your mortgage are 6%, what will be your new monthly payment? How much have you paid in interest to this point, and how much in principal?