Bob and Lisa must replace their old car as soon aspossible. They have found a new one that meets their needsand have negotiated a price of 24,500 with the dealer. Thecouple wishes to buy the car by making a down payment of 2,000 andborrowing the remaining 22,500. The dealer offered to financetheir purchase with terms as follows:
- Loan Period 36 months
- Annual Interest Rate 6%
- Down Payment 2,000
- LoanAmount 22,500
- Monthly Payment 684.49
Bob and Lisa would agree to buy the car if the payment is nomore than 500 per month.
By increasing the the loan period the dealer presented thefacts as follows:
- Loan Period 60months
- Annual Interest Rate 6%
- Down Payment 2,000
- Monthly Payment 500
A. Determine the sales price by calculating the presentvalue of the payments using a spreadsheet program. Presentvalue of the monthly payments using 60 months=5 years X 12 monthsand monthly interest rate by dividing the annual interest rate of6% by 12 months (0.06/12).
B. Is the dealer's behavior ethical?
C. Many types of goods are sold by salespersons whoexplain that the monthly payment is only a certain amount eachmonth. Explain how an understanding of present valuetechniques can help consumers determine whether such a sales pitchis a fair deal.