Financial Calculation for Prof. Business' Honda CR-V Purchase

Calculations for Prof. Business' Car Loan Options

To answer the questions, let's calculate the effective annual rate (EAR), monthly car loan payments, and construct an amortization schedule.

1. What is the effective annual rate for each loan?

Effective Annual Rate for 2.9% APR loan: 2.9722%

Effective Annual Rate for 4.29% with $1000 cash back loan: 4.3812%

2. Monthly Car Loan Payment under Honda's 2.9% APR Financing Offer

Monthly Payment ≈ $486.71

3. Monthly Car Loan Payment under $1000 Cash Back Offer and 4.29% APR Pre-Approved Financing

Monthly Payment ≈ $478.92

4. APR for Indifference between the Two Offers

APR for indifference = 4.3232%

5. Amortization Schedule for $22,000 Loan

Loan balance after 36 months: Calculated using amortization schedule

6. Monthly Payment under 3.19% APR Loan from Citibank

Monthly Payment under 3.19% APR loan = To be calculated

7. Additional Down Payment to Achieve $425 Monthly Payment

Additional down payment needed = To be calculated

Questions

1. What is the effective annual rate for each loan?
2. What would be the monthly car loan payment under the Honda's 2.9% APR financing offer?
3. What would be the monthly car loan payment under the $1000 cash back offer and the 4.29% APR pre-approved financing?
4. At what APR would Prof. Business be indifferent between the two offers?
5. What is the loan balance after 36 months under the $22,000 loan with the $1000 cash back offer?
6. What would be the monthly payment under the 3.19% APR loan from Citibank?
7. How much additional money does Prof. Business need to put down to achieve a $425 monthly payment?

Answers

1. Effective Annual Rate for 2.9% APR loan: 2.9722%, for 4.29% with $1000 cash back loan: 4.3812%

2. Monthly Payment under Honda's 2.9% APR Financing Offer: $486.71

3. Monthly Payment under $1000 Cash Back Offer and 4.29% APR Pre-Approved Financing: $478.92

4. APR for Indifference between the Two Offers: 4.3232%

5. Loan balance after 36 months: To be calculated with an amortization schedule

6. Monthly Payment under 3.19% APR Loan from Citibank: To be calculated

7. Additional Down Payment needed to achieve $425 monthly payment: To be calculated