BUSN 380 study Great Stories/busn380study.com BUSN 380 study Great Stories/busn380study.com | Page 44

5. After visiting several automobile dealerships, Richard Welch
selects the car he wants. He likes its $10,000 price, but financing
through the dealer is no bargain. He has $2,000 cash for a down
payment, so he needs an $8,000 loan. In shopping at several banks for
an installment loan, he learns that interest on most automobile loans is
quoted at add-on rates.
That is, during the life of the loan, interest is paid on the full amount
borrowed even though a portion of the principal has been paid back.
Richard borrows $8,000 for a period of four years at an add-on
interest rate of 11 percent.
Questions
a. What is the total interest on Richard’s loan?
b. What is the total cost of the car?
c. What is the monthly payment?
d. What is the annual percentage rate (APR)?
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BUSN 380 Week 3 Quiz Set 1
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