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Charles is going to purchase a new car that has a list price of $21,450. He is planning on trading in his good-condition 2004 Dodge Neon and financing the rest of the cost over three years, paying monthly. His finance plan has an interest rate of 12.28%, compounded monthly. Charles will also be responsible for 6.88% sales tax, a $1,089 vehicle registration fee, and a $124 documentation fee. If the dealer gives Charles 80% of the listed trade-in price on his car, once the financing is paid off, what percent of the total amount paid will the interest be? (Consider the trade-in to be a reduction in the amount paid.)


Dodge Cars in Good Condition

Model/Year

2004

2005

2006

2007

2008

Viper

$7,068

$7,225

$7,626

$7,901

$8,116

Neon

$6,591

$6,777

$6,822

$7,191

$7,440

Intrepid

$8,285

$8,579

$8,699

$9,030

$9,121

Dakota

$7,578

$7,763

$7,945

$8,313

$8,581

a.

17.64%

b.

15.67%

c.

16.70%

d.

12.86%

Verified Answer :

hoangkhangpham94

Answer:

The answer is C

Step-by-step explanation:

The after-tax amount Charles from saling his 2004 Neon is : 6,591 x 80% x ( 1 - 6.88%) = $4,910

The total amount Charles has to pay for the new car : $ 21,450 + 1,089 + $124 = $22,663

The total amount Charles has to get from finance plan : $ 22,663 - 4,910 = $17,753

For the finance plan, we have: Monthly IR = 12.28% /12 = 1.023%; Number of payment(N) = 12 x 3 = 36; Present value (PV) = Financing amount = $17,753

We apply the present value formular for annuity to find the equal payment Charles needs to pay monthly : C = (PV x Monthly IR) : ( 1 - (1+i)^(-n) ) = $592

So the total repayment needs to be make in Charles' finance plan = $592 x 36 = $21,312

The total interest expenses is: Total repayment - Financing Amount = $21,312 - $17,753 = $3,559 => percentage of total interest expenses in the amount paid = 3,559/21,312 = 16.70%

dubeyshailja64

The percentage of interest in the total amount paid will be 16.70%.

What is interest?

Interest is defined as a monetary charge incurred by a borrower to be paid to the lender along with the principal.

To calculate the interest portion in the total payments, we need to calculate the amount of payment made.

The after-tax amount that Charles will receive after selling his car is:

\(6,591\times 80\% \times ( 1 - 6.88\%) = \$4,910\)

The total amount that he needs to pay for the car is:

\(\$ 21,450 +\$ 1,089 + \$124 = \$22,663\)

Therefore, the net payment he has to give for the car will be:

\(\$22,663 - \$4,910 = \$17,753\)

Since he chose to finance the rest payable amount, the amount financed will be $17,753.

Using the annuity formula, the monthly payments at the rate of interest 12.28% for 3 years will be $592.

So the total amount Charles will repay up to 3 years will be:

\(\$592\times 36= \$21,312\)

The interest amount will be:

\(\$21,312 - \$ 17753 = \$3,559\)

The percentage of interest amount in total payment is:

\(\dfrac{3559}{21312} \times 100 =16.70\%\)\(\dfrac{3559}{21312} \times100 = 16.70\%\)

Therefore the correct option is C.

Learn more about interest here:

https://brainly.com/question/2883618

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