You are considering buying a car $($sticker price of $$43,000)$ but need financing. The car dealership has offered you two loan options: Loan A requires a $$1,750$ downpayment with the remainder financed over $5$ years with monthly payments based on a contractual rate of interest of $4\mathrm{.}1\%$; Loan B requires no downpayment with the balance financed at zero percent over $4$ years with monthly payments. If you opt for Loan A you are eligible for an immediate $$3,000$ rebate on the car; no rebate is offered on the zero percent financing deal.

The market rate for the risks that you pose is $7\mathrm{.}1\%.$ The car has a market value of $$36,000.$

How much value do you destroy with Loan B$?[$Don$$t round interim calculations$]$

You are considering buying a car $($sticker price of $$43,000)$ but need financing. The car dealership has offered you two loan options: Loan A requires a $$1,750$ downpayment with the remainder financed over $5$ years with monthly payments based on a contractual rate of interest of $4\mathrm{.}1\%$; Loan B requires no downpayment with the balance financed at zero percent over $4$ years with monthly payments. If you opt for Loan A you are eligible for an immediate $$3,000$ rebate on the car; no rebate is offered on the zero percent financing deal.

The market rate for the risks that you pose is $7\mathrm{.}1\%.$ The car has a market value of $$36,000.$

Pick the correct statement:

If your only choices are Loan A and Loan B$,$

Multiple Choice

Loan A is better for you because you are effectively paying $$10\mathrm{.}17$ less for the car

Loan A is better for you because you are effectively paying $$1,760\mathrm{.}17$ less for the car

Loan B is better for you because you are effectively paying $$7,905\mathrm{.}50$ less for the car

Loan B is better for you because you are effectively paying $$2,750\mathrm{.}00$ less for the car

None of the above

You are considering buying a car $($sticker price of $$43,000)$ but need financing. The car dealership has offered you two loan options: Loan A requires a $$1,750$ downpayment with the remainder financed over $5$ years with monthly payments based on a contractual rate of interest of $4\mathrm{.}1\%$; Loan B requires no downpayment with the balance financed at zero percent over $4$ years with monthly payments. If you opt for Loan A you are eligible for an immediate $$3,000$ rebate on the car; no rebate is offered on the zero percent financing deal.

The market rate for the risks that you pose is $7\mathrm{.}1\%.$ The car has a market value of $$36,000.$

Assume you have chosen Loan A$.$ How much interest do you pay in the second year of the loan? $[$Don$$t round interim calculations$]$