You purchase a new car. The dealership will provide financing the purchase price of $32,000 and will allow you to defer your first payments for 12 months. After the deferral period you make 48 monthly payments. The interest rate is 6% per year and the interest accrues during the deferral period.

1. Draw the cash slow diagram from your perspective
2. How much are your monthly payments beginning after the deferral period
3. How much interest will you pay over the life of your car loan? (You make all 48 payments)
4. You decide to pay off your car loan early. What will be your payoff when you make the 40^th scheduled payment?
5. How much interest did you save by paying the loan off in 40 months versus keeping the loan for the original term of 48 months?