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

A car with a sticker price of $42,650 with factory and dealer rebates of $5,100
Find the monthly payment if financed for 60 months at 0% APR.
Find the monthly payment if financed at 2.5% add-on interest for 60 months.
Use the APR approximation formula to find the APR for part (b).

To find the monthly payment if financed for 60 months at 0% APR, you need to calculate the loan amount.

Loan amount = Sticker price - Rebates
Loan amount = $42,650 - $5,100
Loan amount = $37,550

Since the APR is 0%, there is no interest charged on the loan. Therefore, the monthly payment will be the loan amount divided by the number of months:

Monthly payment = Loan amount / Number of months
Monthly payment = $37,550 / 60
Monthly payment = $625.83 (rounded to the nearest cent)

To find the monthly payment if financed at 2.5% add-on interest for 60 months, you need to calculate the total amount to be paid back.

Total amount to be paid back = Loan amount + Interest
Total amount to be paid back = $37,550 + ($37,550 * 0.025)
Total amount to be paid back = $37,550 + $938.75
Total amount to be paid back = $38,488.75

Now, divide the total amount to be paid back by the number of months to find the monthly payment:

Monthly payment = Total amount to be paid back / Number of months
Monthly payment = $38,488.75 / 60
Monthly payment = $641.48 (rounded to the nearest cent)

To use the APR approximation formula to find the APR for financing at 2.5% add-on interest, you can rearrange the formula:

APR = (Add-on interest rate / Loan amount) * (12 / Number of months) * 100

In this case, the Add-on interest rate is 2.5%, the Loan amount is $37,550, and the Number of months is 60. Plugging in these values, calculate the APR:

APR = (0.025 / $37,550) * (12 / 60) * 100
APR = (0.0000665) * (0.2) * 100
APR = 0.00133 * 20
APR = 0.0266

Therefore, the APR approximation for financing at 2.5% add-on interest is approximately 2.66%.