Kenny and Jannah want to purchase a car so that Kenny doesn’t have to take the bus up their local mountain where Kenny works as a ski shop manager in the winter and a mountain bike shop manager in the summer. Jannah, who drives for Lyft, already owns a 2010 PT Cruiser. Kenny complains that the mildewy bus is cold and gross. For the past six years they have been able to put $50 each month into a savings account with an APR of 1.2%.

a) How much do Kenny and Jannah have saved toward a down payment? Indicate which formula you use and identify all of the relevant variables (A, P, APR, n, Y, and/or PMT).

Kenny and Jannah qualify for a 6-year car loan with a 10.1% APR and a 3-year car loan with an 8.5% APR. They found a new 2019 Ford F250 Superduty listed at $39,900. Their combined monthly income is $6100 during ski season, but they know that will drop in the summer. They know they shouldn’t pay more than 10% of their income on car payments.

b) Assuming Kenny and Jannah make the down payment from part (a) and will make payments for the entire life of the loan, how much will they pay monthly for each loan option? Are either of these options within 10% of their monthly income? Indicate which formula you use and identify all of the relevant variables (A, P, APR, n, Y, and/or PMT).

c) Assuming Kenny and Jannah will make payments for the entire life of the loan, how much will they pay in total for the F250 with each loan option?

Answer rating: 100% (QA)

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