Assessing Auto Loans
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Assessing Auto Loans
1. Search the internet and locate the sale price for the car of your dreams.
2. For the purpose of this exercise, you can ignore sales tax.
3. Determine the annual interest rate for your loan using information from a local bank or an internet ad. Reduce this rate by 2%. This is r, but expressed as a decimal.
4. Decide the time, in years, you wish to repay the loan (typically, 3-7 years, half years are okay). This is t.
5. Determine the interest on your loan, using the formula:
Interest = sale price*rate*time, (I = prt).
6. Determine the total cost of your loan, using the formula:
Total cost = (sale price*rate)time + Sale Price
7. Model the total cost as a linear function, with time as the independent variable:
F(t) = (pr)t + p.
8. Divide the total cost by the number of months, to determine the monthly payment.
9. Repeat steps 4 & 5 to determine the cost of the loan if the interest rate had not been reduced by 2% - how much money did you save?
10. Summarize your findings by writing a brief statement that includes the pertinent information from the steps above; rates, totals, savings, etc.
(The luxury car of my choice is the Cadillac Tesla ELR which is $50,000 dollars).
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Solution Summary
Using Excel we will calculate the interest, cost, and payments using various methods on a car loan.
Education
- MBA, Merage School of Business, Univ of Cal, Irvine
- BA, Univ of Cal, Irvine
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