Question

A car dealer offers you two deals on a car that costs $16,000. Please calculate the monthly payment, given these two payment options the car dealer is offering.
Payment Option 1: You can finance the car for 60 months with no interest if you make a $3,000 down payment.
Payment Option 2: You can finance the car for 72 months (6 years) with 1% simple annual interest and no down payment. (Hint: To calculate simple annual interest, use the formula Interest = Principal * Rate * Time (in years). Add the amount of interest to the price of the car.)
which monthly payment is lower?

Answer 1

cont*
Please explain how you arived at your conclusion.

I just need help on option 2, i don't know what the 1% simple annual interest fits in? please help

Answer 2

Option 1) The car costs $16,000. If you make a down payment of $3,000, then you can pay the other $13,000 with a monthly payment for 5 years/60 months and no interest. The monthly payment would be $216.70.

this is what i got for option 1)

Answer 3

this is what i have so far for option 2) :

Option 2) The car costs $16,000. You can pay off the car monthly for 6 years/72 months with 1% simple annual interest and no down payment.

Answer 4

pretty close for option 1) The monthly payment would be $216.70.

I think you rounded to the nearest tenth, but money should be rounded the nearest 100th (cent btw, notice that 1 cent means 1/100th of a dollar. It uses the same base as century 100 years)

So re-do option 1 more carefully

Answer 5

For option 2) the hint tells you what to do

To calculate simple annual interest, use the formula Interest = Principal * Rate * Time (in years). Add the amount of interest to the price of the car.)

That says: find the total interest and add it to the price of the car.

Interest = Principal * Rate * Time (in years)

Principal is the amount borrowed. It is the original price of the car.
Rate is 1% changed to a decimal. 1% or 1 per cent = 0.01
Time in this problem is 6 years.

Can you find the interest?

Answer 6

if I am not clear, option 1 is not 216.70 (but it is close to this)

Answer 7

Is option 1) $216.67 ?

Answer 8

yes, that looks good.

can you find the interest for option 2?

Answer 9

i think so.. one second..

Answer 10

is it the principle (16,000) times the rate (.01) divided by 6?

Answer 11

Interest = Principal * Rate * Time (in years)

no divide in this equation

Answer 12

so times the 6? or am i way off?

Answer 13

the * means multiply. An equation is instructions. Just follow the instructions

Answer 14

Interest = Principle (16,000) * rate (1%=.01) * Time (in years) so 6?

960 interest?

Answer 15

yes, that is the total interest for 6 years.
add it to the price of the car, and figure out the monthly payments for 72 months

Answer 16

it said simple annual interest, so does that mean its a one time payment or a monthly one?

Answer 17

the total will end up being $16,960, but for the monthly w/o interest its 222.22 (or 222.23?)

Answer 18

They want you to figure out the total interest, add it to the price, then divide by 72

simple interest means you can use the formula they gave you. There is also compound interest, and that is more complicated.

Answer 19

960/72 = 13.3333 (13.33 or 13.34?)

Answer 20

the total will end up being $16,960

that is correct.
now find the monthly payment for this amount

Answer 21

$235.56 monthly

Answer 22

yes.

you could do it in parts: 16000 /72 + 960/72 but the rounding might be off one cent.

fyi, to round 222.2222 to the nearest hundredth (2nd digit to the right of the decimal point, look at the next number to the right. If it is 5 or more, round up, otherwise, leave as is)

In other words, 222.22 *2* the *2* is less than 5, so the answer is 222.22
if it were 222.22 *7* you would get 222.23 because 7 is greater than or equal to 5

Answer 23

which monthly payment is lower?

I assume you have figured out it is option 1

Answer 24

lol yes i have, thank you so much for helping me through this whole thing!