Computing average monthly payment for a car

Reference no: EM13826249

Problem:

You are the owner of a used car business near the York campus. Your company borrows money from a bank on a line of credit with a monthly interest rate of 0.50%. You know that some of your customers may not have the best credit rating, so you have decided that you need to charge all customers a higher interest rate (than your own bank rate) when they finance their purchases. Your average sales price per used car is $6,500 when it is financed for 36 months at an 18% APR with monthly compounding.

a) What is the dollar amount of a customer's monthly payment on your "average" car sale? Assume payments are made at the end of the month.

b) What is the dollar amount of a customer's monthly payment if payments are made at the beginning of each month and the customer pays $1,000 cash up front?

c) Would your profit be higher or lower if a customer made cash purchase, paying the entire $6,500 immediately, instead of the 36 payments calculated in part a)? Explain why the profit is different, and compute the dollar amount of the change in profits.

Additional Information:

This question is basically belongs to the Finance as well as it explains about computing average monthly payment for a car and also whether or not it is profitable if the buyer pays the entire amount once or in 36 months.

Reference no: EM13826249

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