Bob and Lisa were shocked by the amount of the monthly payment.The dealer told them not to worry because he could adjust the termsof the loan to fit their budget. Bob and Lisa would agree to buythe car if the payment is not more than $500 per month.
The dealer disappeared for a while and returned bearing goodnews. By increasing the loan period to 60 months, the payment would be only $500 per month. The dealerpresented the facts as follows:
Loan period 60months
Annual interestrate 6%
Downpayment $2,000
Monthlypayment $500.00
Bob and Lisa were delighted. They found the perfect car thatalso fit their budget.
A. Determine thesales price by calculating the present value of the payments usinga spreadsheet program. [Hint, determine the present value of themonthly payments using a term of 60 periods (60 months = 5years ×12 months) and the monthly interest bydividing the annual interest rate of 6% by 12 months (0.06 ÷12)].
B. Is the dealer's behavior ethical?
C. Many types of goods are sold by salespersons who explain that the monthly paymentis only a certain amount each month. Explain how anunderstanding of present value techniques can help consumersdetermine whether such sales pitch is a fair deal.