MATH3

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MATH125: Unit 3 Individual Project

ANSWER FORM

1. Choose a car that you wish to own, and find the price of this car. For this example, only consider new cars to purchase from a dealership. This will be your principal value, P.

Principal, P

2. Research available interest rates on this particular car. This will be the rate, r.

Rate, r

3. Decide how long you would like to take to pay off this car. Choose between 3–7 years. This will be the time, t.

Time, t

4. The simple interest formula, can tell you how much interest will be added to the principle amount of this loan. Calculate the interest on your loan.

Interest, I

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5. How much will you be repaying over the life of your loan?

Total Repayment

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6. How much are your monthly payments?

Monthly Payments

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7. Assume that you have 5% to put as a down payment based on the original purchase price of the car. How much will you be putting down?

Down Payment

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8. With the down payment, what will the new monthly payments be?

New Monthly Payment

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Now, consider the option to lease this same car.

9. Most leases require a down payment. Assume that the dealership is requiring a 5% down payment based on the original purchase price of the car. What is the new value of P on your lease?

Answer

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10. The appeal of a lease is a lower interest rate. Subtract 2% from the original interest rate (from Step 2). If your answer is less than 0.5%, use the minimum rate of 0.5%.

Reduced Rate r

11. The length of a lease is typically 2–5 years. Choose how long you wish to lease this car.

Lease Time t

12. The monthly payment on a lease accounts for the depreciation of the car’s value. Assume at the end of your lease, the car has only retained 50% of its original value (50% of your answer in Step 1). What is your car’s value at the end of the lease? Use this for your new value of P.

New Value of P

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13. How much interest will you be paying over the course of this lease?

Interest, I

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14. What is your total cost, in other words principle plus interest?

Total Cost

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15. How much is your monthly payments?

Monthly Payments

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16. At the end of the lease, you do not own the car. If you wish to purchase the car, you would still owe the value of P from step 12. At this point, you could turn in the keys and walk away, assuming the car is in perfect condition and ignoring mileage fees. What are the benefits and disadvantages to walking away from this car?

Explain your answer below

17. Instead of walking away, you could also purchase the car for what it is now worth, plus the interest. Using P from step 12, r from step 2 and t from step 3, calculate how much you would repay over the course of this new loan.

Interest
Total Repayment

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18. How much did you pay in total for leasing this car?

Total Cost of the lease

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19. Would you consider leasing a car? Discuss the advantages and disadvantages for buying versus leasing a car.

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