PERSONAL FINANCE
PERSONAL FINANCE
8th Edition
ISBN: 9780134730981
Author: KEOWN
Publisher: PEARSON
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Question
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Chapter 8, Problem 1PA
Summary Introduction

To determine:

First year cost of car ownership.

Introduction:

Loan is the amount or thing is taken from another person with the promise of future payment.

Expert Solution & Answer
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Explanation of Solution

Given,

Total repayment in one year is $4,281.12.

Property taxes are $300.

Sales taxes are $450.

Title and tags are $40.

Maintenance and usage costs are $1,500.

Insurance is $2,000.

Formula to calculate total first year cost,

Total first year cost = (Total repayment in one year + Property taxes + Sales taxes + Title and tags + Maintenance and usage costs + Insurance)

Substitute $4,281.12 for total repayment in one year, $300 for property taxes, $450 for sales taxes, $40 for title and tags, $1,500 for maintenance and usage cost and $2,000 for insurance in the above formula.

Total first year cost = $4,281.12 + $300 + $450 + $40 + $1,500 + $2,000 = $8,571.12

Total first year cost is $8,571.12.

Working notes:

Calculation for N’s monthly payments,

PMT=PV×(im1(1+im)n×m)=$15,000×(0.0665121(1+0.066512)4×12)=$15,000×0.005510.7670=$356.76

Calculation for total repayment in one year,

Total repayment in one year = (Monthly payment × Number of payment in one year)
= $356.76 × 12
= $4,281.12

Calculation for property taxes,

Propertey taxes=Rate×Vehicle value=2100×$15,000=$300

Calculation for sales taxes,

Sales taxes=Rate×Sales price=3100×$15,000=$450

Conclusion

Hence, total first year cost of car ownership is $8,571.12.

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