Question

1. Taylor needs to purchase a car. The car Taylor plans to purchase costs $10,000. Taylor has saved $2,000 to use as a down payment for the car. Taylor is offered credit terms of 5% APR for 5 years. Please calculate the following:

a. To purchase the car, what is the amount Taylor will need to finance? (1 point)



b. In one year, how much interest will Taylor pay on this loan?
(Interest = Principal x Rate x Time) (1 point)




c. After 5 years, in order for Taylor to own the car, what will the actual, total cost of the car be in dollars? (2 points) (down payment + amount financed + interest = total cost of the car)

Answer 1

a. The amount Taylor will need to finance is $8,000

b. The amount Taylor pays as interest in one year is $400

Explanation:

The given parameters of the financing for the car are;

The cost of the car Taylor plans to purchase, C = $10,000

The amount Taylor has saved to be used as down payment, S = $2,000

The interest rate of the credit Taylor is offered = 5%

The duration given for repayment of the loan = 5 years

a. To purchase the car, the amount Taylor will need to finance, 'P', is given as follows;

P = C - S

∴ P = $10,000 - $2,000 = $8,000

b. The amount of interest on the loan in one year, 'I', is given by the following formula;

`I = (P * R * T)/(100)`

Where;

I = The interest payed

P = The principal amount taken as loan = $8,000

R = The interest rate = 5% APR

T = The time period the interest is applied = 1 year

Plugging in the values, we get;

`I = (\$ \, 8,000 * 5 * 1)/(100) = \$ \, 400`

The interest Taylor will pay on the loan in one year, I = $4,00