11. If Bonnie financed $10,000 for a new car at a 4% APR, paid back over 5 years, her monthly principal + interest payment would be $184.
a. Assuming she keeps her car and pays it off in 5 years, how much total money will she have paid the lender in 5 years? (Section 8.3) (1 point)
b. How much of the total money paid in part (a) was interest to the bank/lender? (Section 8.3) (1 point)
12. Pat’s credit score is much lower than Bonnie’s because he had two 30 day late payments to the lender on his credit card. The lowest auto loan APR he was able to qualify for was 6% because of his lower credit score. He wants to finance $10,000 for a new car just like Bonnie. Use the online loan calculator at www.bankrate.com/calculators/mortgages/loan‐calculator.aspx to help you determine how much higher the cost of Pat’s auto loan (total interest over 5 years) will be paying 6% instead of the 4% rate Bonnie got. Make sure to clearly show how much more Pat will pay over the life of the loan with the higher interest rate. (Section 8.3)
To answer question 11a, we can calculate the total money Bonnie will have paid to the lender over 5 years by multiplying the monthly payment by the number of months in 5 years.
First, we need to calculate the number of months in 5 years by multiplying 5 years by 12 months per year:
5 years * 12 months/year = 60 months
Next, we can multiply the monthly principal + interest payment by the number of months:
$184/month * 60 months = $11,040
Therefore, Bonnie will have paid a total of $11,040 to the lender over 5 years.
To answer question 11b, we can calculate the amount of interest paid by subtracting the original loan amount from the total amount paid to the lender.
The original loan amount is $10,000, so we can subtract this from the total paid amount of $11,040:
$11,040 - $10,000 = $1,040
Therefore, $1,040 of the total money paid in part (a) was interest to the bank/lender.
Moving on to question 12, we need to compare the costs of Pat's auto loan with a 6% APR to Bonnie's loan with a 4% APR.
To determine the higher cost of Pat's loan, we need to calculate the total interest he will pay over 5 years using the online loan calculator at www.bankrate.com/calculators/mortgages/loan‐calculator.aspx.
Using the calculator, enter the loan amount of $10,000, loan term of 5 years (60 months), and an interest rate of 6%. The calculator will then provide the total interest paid.
Let's assume that the total interest for Pat's loan is $X.
To find out how much more Pat will pay over the life of the loan compared to Bonnie, we can subtract the total interest for Bonnie's loan ($1,040) from the total interest for Pat's loan ($X).
Amount more paid by Pat = $X - $1,040
Therefore, the higher cost of Pat's auto loan would be the amount more paid by Pat compared to Bonnie's loan.