Question

multiple choice question

Focus on Personal Finance - 180 Day Option, 5th Edition

Using the following information, what is the cost to buy a car?

    Down payment = $3000

Monthly loan payment = $350 a month for a six year loan

Opportunity cost of down payment = $3000 X loan period (in years) X 2% interest

Estimated value of vehicle at end of ownership period =$4000

		$21,200
		$24,560.
		$25,200.
		$28,200

Answer 1

Answer: Correct option is $24560
Cost to buy a car is calculated as:
Cost=Down payment + Total monthly loan payment + Opportunity cost of down payment - Estimated value at end of ownership period
Given that:
Down payment=$3000
Total monthly loan payment= $350 per month for 6 years= $350*(12 months in year)*(6 years)=$350*12*6=$25200

Opportunity cost of down payment=($3,000 * 6 years * 2%)=$360

Estimated value at end of ownership period=$4000
Substituting the values in the equation we get:

$3000+$25200+$360-$4000=$24560