At phill's discount car kingdom, you can purchase a used car for $14,000. phill offers you two payment options: option 1: you can apply an immediate cash rebate of $2,000 from the dealer to reduce the cost of the car and finance the rest with a loan that has an annual rate of 3.6%, with interest compounded monthly, for 3 years. you would make equal payments at the end of each month until the loan was repaid . option 2: you can take out a 0% loan for the full price of the car in which you agree to pay the same amount at the end of each month for 3 years until the car is paid off what is the total amount that you would pay (out of pocket) for the car under each option?

Ans. For option 1, you would pay a total of $14,677.64 and for the second option, you would pay $14,000.

Step-by-step explanation:

Hi, we need to find the amount of the equal payments that you need to make every month, given the problem´s conditions. First, let´s find the effective montly rate of this credit.

This means that the rate is 0.3% effective monthly

The period of time for this obligation is 3 years, but since the payments are made every month, we need to use 36 months instead of 3 years.

Now, we are ready to find the amount of money that you need to pay every month, for 36 months in order to pay for your car. We use the following formula.

Since you made a down payment of $2,000, we will only need to finance $12,000. This is the way everything should look like.

Let´s solve for A (annuity)

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The total amount paid if you take this option is:

In the case of option 2 (0% loan-pay same amount every month for 36 months), there is no need for any calculations (because you pay $14,000 in total), but if you want to know how much to pay every month, you just go ahead and divide 14,000 by 36 which is $388.89. But at the end, this way you will pay $14,000.

Best of luck.