Question
You are offered a job in New York and you plan to buy a car for transportation. The car costs $30,000 and the car dealer
You are offered a job in New York and you plan to buy a car for transportation. The car costs $30,000 and the car dealer is willing to make you a loan of $30,000 with a 3-year maturity.
a.The car dealer advertises an annualstatedinterest rate of 9%, with monthly payments (i.e.,the 9%annualinterest rate ismonthly compounded).How much do you need to pay every month? Assume you start making the payments at the end of first month.
b.Forget a).Suppose your job offers you $9000 at the end of every month for 3 years. In addition to make the monthly payment for the car, you need to pay other expenses as well. The first expense of $88,000 is paid at the beginning of the first year, the expense will increase by 10% per year, and the last expense payment will be paid at the beginning of the third year. The annual interest rate of a bank loan is 9%,annually compounded. Please calculate to check whether you earn enough to pay for the expenses and the car.
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