You are saving to buy a new car in two years. You currently have $4000 in an account that pays 4% annual interest compounded quarterly. You plan on adding to that account with quarterly deposits of $600 each over the next two years. Then you will take the balance of that account to use as a down payment on your new car. You expect the car you want will cost $42,000 and that you will be able to get a loan from the dealer at a 12% annual rate for a five-year term.

Required

a. How much will you have accumulated for the down payment?

b. What will your monthly payments be on the car loan?

c. If you wanted to pay cash for the car when you buy it in two years, how much would you need to have in an account today (assuming you do not make any additional deposits) if the account pays 6% compounded annually?

Answer rating: 100% (QA)

a To calculate the amount accumulated for the down payment we need to find the future value of the q... View the full answer