Need help with 4,5,6. **Car Loans: Brand New or Pre-Owned?**According to the Brookings Institution, approximately 76% of working adults in the United States drive to work alone every day. Since owning a car is a big part of our lives, understanding the true cost involved in a car loan is important. Brand new cars are generally more expensive but often can be financed at lower interest rates, whereas pre-owned vehicles cost less but may require a loan at a higher rate. In this activity, you will explore the cost difference between financing a new vehicle and a pre-owned one.Consider two options for purchasing a Honda Fit LX in 2020: one option is a brand new 2020 model with a manufacturer's suggested retail price (MSRP) of $17,945, and the other is a pre-owned, two-year-old 2018 model listed for $15,000. Suppose you have saved $1,500 for a down payment. The dealer has already included any applicable fees, including taxes, in the advertised price. You plan on taking 5 years to pay off the loan. The table below shows the price and interest rate for each option.| | Price | Interest Rate ||-----------------------|---------|---------------|| 2020 Honda Fit LX | $17,945 | 1.9% || 2018 Honda Fit LX | $15,000 | 6.9% |**1. Compute the amount to be financed for each car, considering that you have saved $1,500 for a down payment.**- 2020: $17,945 - $1,500 = $16,445- 2018: $15,000 - $1,500 = $13,500**2. Use the formula for a regular payment on a fixed installment loan to determine the monthly payment. Round your answer to the nearest dollar. Remember to use the amount that you need to finance.**- 2020: $16,445 / [1 - (1 + 0.019/12)^-5x12] / (0.019/12) ≈ $288- 2018: $13,500 / [1 - (1 + 0.069/12)^-5x12] / (0.069/12) ≈ $267**3. Determine the total amount paid when repaying the car loan. This is the ### Educational Content: Understanding Car Loan Financing**4. Finance Charge Calculation**Determine the finance charge for each purchasing option. This is the difference between the total amount paid on the loan and the amount financed.**5. Comparison Table: New vs. Pre-owned Car**| | 2020 Honda Fit LX | 2018 Honda Fit LX ||------------------------------------|-------------------|-------------------|| **Price** | $17,945 | $15,000 || **Interest Rate** | 1.9% | 6.9% || **Down Payment** | (To be filled) | (To be filled) || **Amount Financed** | (To be filled) | (To be filled) || **Monthly Payment** | (To be filled) | (To be filled) || **Total Amount Paid** | (To be filled) | (To be filled) || **Finance Charge** | (To be filled) | (To be filled) |**6. Analyzing Cost Implications**The pre-owned car definitely has a lower monthly payment, which might sound appealing when budgeting your expenses. Could you make an argument, using the values in your table, that the money borrowed to purchase the pre-owned vehicle is actually “more expensive” than the money borrowed to purchase the new vehicle? Explain your reasoning.---**Graph/Diagram Explanation**The table provided is a comparative analysis of two car financing options: a 2020 Honda Fit LX and a 2018 Honda Fit LX. It lists several factors crucial to determining the cost-effectiveness of each option. These factors include:- **Price**: The initial cost of each vehicle.- **Interest Rate**: The percentage charged on the financed amount.- **Down Payment**: The upfront payment which reduces the financed balance.- **Amount Financed**: Total loan amount after down payment.- **Monthly Payment**: The amount to be paid monthly over the loan's term.- **Total Amount Paid**: The sum of all monthly payments and the down payment.- **Finance Charge**: Additional cost paid due to interest over the term of the loan, calculated as the difference between the total amount paid and the amount financed.The analysis in part 6 encourages consideration of the overall cost of the loan beyond the monthly payments by

2020 Honda Fit LX Price = $17,945 Interest Rate = 1.9% Time Period = 5 years Down Payment = $1,500…

According to the Brookings Institution, approximately 76% of working adults in the United States drive to work alone every day. Since owning a car is a big part of our lives, it is important to understand the true cost involved in a car loan. Brand new cars are more expensive but often can be financed at lower interest rates, while pre-owned vehicles cost less but often require a loan at a higher rate. In this activity, you will explore the difference in cost between financing a new vehicle and a pre-owned one. Consider two options for purchasing a Honda Fit LX in 2020: one was a brand new 2020 model with a manufacturer's suggested retail price (MSRP) of $17,945, and the other was a pre-owned, two-year-old model listed for $15,500. Suppose you have saved $1500 for a down payment and the dealer has already included any applicable fees, including taxes, in the advertised price. You plan on taking 5 years to pay off the loan. The table below shows the price and interest rate for each option. 2020 Honda Fit LX 2018 Honda Fit LX Price $17,945 $15,000 Interest Rate 1.9% 6.9% 1. Compute the amount to be financed for each car, considering that you have saved $1500 for a down payment. 2020: 17945-1500= 16445 2018: 15000-1500= 13500 2. Use the formula for a regular payment on a fixed installment loan to determine the monthly payment. Round your answer to the nearest dollar. Remember to use the amount that you need to finance. 2020: 16445/1-(1+.019/12)^-5x12/.019/12= 287.53= $288 2018: 13500/1-(1+.069/12)^-5x12/.069/12= 266.68- $267 3. Determine the total amount paid when repaying the car loan. This is the amount paid in payments over the life of the loan plus the down payment. 2020: 288x60= 17280+1500=18780 2018: 267x60= 16020+1500=17520

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Need help with 4,5,6.

Transcribed Image Text:**Car Loans: Brand New or Pre-Owned?** According to the Brookings Institution, approximately 76% of working adults in the United States drive to work alone every day. Since owning a car is a big part of our lives, understanding the true cost involved in a car loan is important. Brand new cars are generally more expensive but often can be financed at lower interest rates, whereas pre-owned vehicles cost less but may require a loan at a higher rate. In this activity, you will explore the cost difference between financing a new vehicle and a pre-owned one. Consider two options for purchasing a Honda Fit LX in 2020: one option is a brand new 2020 model with a manufacturer's suggested retail price (MSRP) of $17,945, and the other is a pre-owned, two-year-old 2018 model listed for $15,000. Suppose you have saved $1,500 for a down payment. The dealer has already included any applicable fees, including taxes, in the advertised price. You plan on taking 5 years to pay off the loan. The table below shows the price and interest rate for each option. | | Price | Interest Rate | |-----------------------|---------|---------------| | 2020 Honda Fit LX | $17,945 | 1.9% | | 2018 Honda Fit LX | $15,000 | 6.9% | **1. Compute the amount to be financed for each car, considering that you have saved $1,500 for a down payment.** - 2020: $17,945 - $1,500 = $16,445 - 2018: $15,000 - $1,500 = $13,500 **2. Use the formula for a regular payment on a fixed installment loan to determine the monthly payment. Round your answer to the nearest dollar. Remember to use the amount that you need to finance.** - 2020: $16,445 / [1 - (1 + 0.019/12)^-5x12] / (0.019/12) ≈ $288 - 2018: $13,500 / [1 - (1 + 0.069/12)^-5x12] / (0.069/12) ≈ $267 **3. Determine the total amount paid when repaying the car loan. This is the

### Educational Content: Understanding Car Loan Financing

**4. Finance Charge Calculation**

Determine the finance charge for each purchasing option. This is the difference between the total amount paid on the loan and the amount financed.

**5. Comparison Table: New vs. Pre-owned Car**

| | 2020 Honda Fit LX | 2018 Honda Fit LX |
|------------------------------------|-------------------|-------------------|
| **Price** | $17,945 | $15,000 |
| **Interest Rate** | 1.9% | 6.9% |
| **Down Payment** | (To be filled) | (To be filled) |
| **Amount Financed** | (To be filled) | (To be filled) |
| **Monthly Payment** | (To be filled) | (To be filled) |
| **Total Amount Paid** | (To be filled) | (To be filled) |
| **Finance Charge** | (To be filled) | (To be filled) |

**6. Analyzing Cost Implications**

The pre-owned car definitely has a lower monthly payment, which might sound appealing when budgeting your expenses. Could you make an argument, using the values in your table, that the money borrowed to purchase the pre-owned vehicle is actually “more expensive” than the money borrowed to purchase the new vehicle? Explain your reasoning.

---

**Graph/Diagram Explanation**

The table provided is a comparative analysis of two car financing options: a 2020 Honda Fit LX and a 2018 Honda Fit LX. It lists several factors crucial to determining the cost-effectiveness of each option. These factors include:

- **Price**: The initial cost of each vehicle.
- **Interest Rate**: The percentage charged on the financed amount.
- **Down Payment**: The upfront payment which reduces the financed balance.
- **Amount Financed**: Total loan amount after down payment.
- **Monthly Payment**: The amount to be paid monthly over the loan's term.
- **Total Amount Paid**: The sum of all monthly payments and the down payment.
- **Finance Charge**: Additional cost paid due to interest over the term of the loan, calculated as the difference between the total amount paid and the amount financed.

The analysis in part 6 encourages consideration of the overall cost of the loan beyond the monthly payments by

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