What would her monthly loan payments be on each car

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Question - The Biden administration is considering ways to reduce the carbon footprint of the U.S. economy. One proposal on the table is a government program to provide low-interest financing for people who buy fully electric vehicles. Assume the following:

Under the government program, buyers of electric cars would be able to get financing at an APR of 1 percent on 5-year loans with monthly payments and monthly compounding. The APR on 5-year car loans with monthly compounding and payments available from banks is 5 percent (for any type of car). Car loans have fixed monthly payments.

Ms. Lee is considering buying an electric car costing $42,000 (which would qualify for the government program) or a regular (gas fueled) car costing $35,000. She would need to finance the car purchased and would drive it for five years and then sell it. Assume the resale value would be $10,000 for each car at that point.

Ms. Lee can invest at an APR of 5 percent with monthly compounding.

Assuming Ms. Lee makes no down payment, what would her monthly loan payments be on each car?

Reference no: EM132937729

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