Assume the car can be purchased for 0% down for 60 months (in lieu of rebate).

A car with a sticker price of $42,100 with factory and dealer rebates of $5,100
(a) Find the monthly payment if financed for 60 months at 0% APR. (Round your answer to the nearest cent.)
$ 1

(b) Find the monthly payment if financed at 2.5% add-on interest for 60 months. (Round your answer to the nearest cent.)
$ 2

(c) Use the APR approximation formula to find the APR for part (b). (Round your answer to one decimal place.)
3 %

(d) State whether the 0% APR or the 2.5% add-on rate should be preferred.
0% APR
2.5% add-on rate
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(a) To find the monthly payment when financing the car for 60 months at 0% APR, you can divide the total purchase price by the number of months. In this case, the car's sticker price is $42,100, and since there's no down payment, that's the total purchase price.

Monthly payment = Total purchase price / Number of months

Monthly payment = $42,100 / 60

Using a calculator, the monthly payment would be approximately $701.67.

Therefore, the monthly payment if financed for 60 months at 0% APR is $701.67.

(b) To find the monthly payment when financing the car at 2.5% add-on interest for 60 months, you need to calculate the interest amount and add it to the principal.

First, calculate the interest amount:
Interest amount = Principal x Interest rate
Principal = Sticker price - Rebates = $42,100 - $5,100 = $37,000 (this is the amount being financed)
Interest rate = 2.5% = 0.025

Interest amount = $37,000 x 0.025

Using a calculator, the interest amount would be $925.

Next, add the interest amount to the principal and divide by the number of months to get the monthly payment:

Monthly payment = (Principal + Interest amount) / Number of months
Monthly payment = ($37,000 + $925) / 60

Using a calculator, the monthly payment would be approximately $651.25.

Therefore, the monthly payment if financed at 2.5% add-on interest for 60 months is $651.25.

(c) To use the APR approximation formula to find the APR for the 2.5% add-on rate, we can use the following formula:

APR = (Add-on interest rate / Number of months) x 12 x 100

In this case, the add-on interest rate is 2.5% and the number of months is 60.

APR = (2.5 / 60) x 12 x 100

Using a calculator, the APR would be approximately 5%.

Therefore, the APR for the financing option with a 2.5% add-on rate is approximately 5%.

(d) Based on the calculations, the 0% APR option would be preferred because it has a lower monthly payment compared to the 2.5% add-on rate option. Additionally, the 0% APR means that no interest is being charged, making it the more favorable choice financially.