# The following ad was placed by a used car dealer in town. $1,500 down +$99 for first 36 months +...

## Question:

The following ad was placed by a used car dealer in town:

$1,500 down +$99 for first 36 months + $199 for 36 months. What is the price of the car if the interest rate is 12% per year? A.$2,339

B. $10,945 C.$7,168

D. $8,668 ## Dealer financing: Dealer financing is an add-on service provided by retailers to offer easy purchase option to its customers. The retailers offer loan services to purchase the product and hand over it to bank after processing. ## Answer and Explanation: The correct option is D,$8,668

Computation of cost of the car:

 Particulars Amount ($) Down payment 1,500 Monthly installments for first 36 months 99 Present value of monthly installments for first 36 months (PVIFA(99,1%,36 months) 2,980.6425 Monthly installments for next 36 months 199 Present value of monthly installments for next 36 months (PVIFA(199,1%,72 months) - PVIFA(199,1%,36 months) 4187.5371 Cost of the car (Sum of down-payment and PVIFA of monthly installments) 8,668.1796 Table (1) Therefore, the total cost of the car is$8,668.

Note:

Interest rate is 12% per year.

Interest rate per month is (12 divided by 12) 1%.

Present value is calculated by draw8ing the interest factor from the PVIFA table.