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6.2 Buying Now, Paying Later

6.2 Buying Now, Paying Later
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  • 1. Motorcycles

    The tables show loan rates and terms for new and used motorcycle purchases. (See Example 1 and Example 2.)

    You buy a brand-new, custom-built chopper for $35,000.

    1. What is the monthly payment on a 60-month loan?
    2. Create an amortization table showing how the balance of the loan decreases.

    • Worked-Out Solution
      1. For a 60-month loan on a new motorcycle, the annual percentage rate is 4.99%. This implies that the monthly payment is

      2. An amortization table is shown in the spreadsheet.

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  • 2. Motorcycles

    The tables show loan rates and terms for new and used motorcycle purchases. (See Example 1 and Example 2.)

    You buy a used motorcycle for $8000.

    1. What is the monthly payment on a 36-month loan?
    2. Create an amortization table showing how the balance of the loan decreases.
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  • 3. Finding a Remaining Balance

    The tables show loan rates and terms for new and used motorcycle purchases. You buy a used motorcycle for $5000 and choose a 24-month loan. In 12 months, is the remaining balance less than one-half of the original loan amount? If not, when does this occur? (See Example 1 and Example 2.)

    • Worked-Out Solution

      For a 24-month loan for a used motorcycle, the annual percentage rate is 5.24%. This implies that the monthly payment is

      An amortization table is shown in the spreadsheet.

      After 12 months, the balance is $2565.28, which is not less than half of the original amount of the loan. By 13 months, the balance will be $2356.58, which is less than half.

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  • 4. Finding the Cost of Credit

    The tables show loan rates and terms for new and used motorcycle purchases. You buy a new motorcycle for $18,000 and choose an 84-month loan. What is the cost of credit? (See Example 1 and Example 2.)

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  • 5. Comparing Loans

    The tables show loan rates and terms for new and used motorcycle purchases. (See Example 1 and Example 2.)

    You buy a new dirt bike for $13,000.

    1. Find the monthly payments on loans with terms of 2 years, 3 years, 4, years, and 5 years.
    2. Find the cost of credit for each loan. How does the cost of credit change as the term increases?
    • Worked-Out Solution
      1. Here are the monthly payments for the various terms of the loan.

      2. The cost of credit for the various terms are

      As the term increases, the monthly payments decrease, but the cost of credit increases.

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  • 6. Double Payments

    You are considering a 5-year loan for a motorcycle. Will making double monthly payments decrease the cost of credit by 50%? Given that you can easily make double payments, should you choose a different term? Explain.

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