Q2) You are thinking of buying a used car that costs $6000 and has an expected zero resale value at the end of 4 years. Both Campus Cars and Deals on Wheels are offering special low-rate car loans to York students. Campus Cars will loan you the $6000 and charge you a 10.25% EAR and want the loan repaid in 48 equal monthly payments, with the first payment due immediately. Deals on Wheels will loan you the purchase price of the car at a 9.8% APR with the first of 48 payments starting in one month’s time. Your estimated costs of operating the car, including insurance, are $215.00 per month, payable at the end of each month and increasing each month at an annualized rate of 6% (APR).
a) What is the monthly payment for the Campus Cars loan?
b) What is the monthly payment for the Wheels on Deals loan?
c) What is the present value of your operating costs if your opportunity cost of funds is 9% (APR)?
ANSWERS SHOULD BE IN FULL SOLUTIONS FOR BETTER UNDERSTANDING!