Beth's new car

[kanha81]

The purchase price of Beth’s new car, including the sales tax, is $8,000. If she finances the car, making a down payment of $2,000 and paying off the rest in equal monthly installments, what will be the total cost of the car, including the sales tax and financing?

(1) The installments are to be $200 per month
(2) The installments will extend over a period of exactly 3 years.

How do I deduce answer from this problem?

Thanks.

[mike22629]

IMO C.

Basically, question is telling you that you are financing 6,000 over a certain period of time, and it is asking you what the total cost will be after taxes and interest.

Basically, all you need to know is the payment and time period, exactly what the two questions tell you.


Note: with DS, sometimes it is not a matter of solving the problem, but simply realizing that you have sufficient evidence to answer it.

[kanha81]

IMO C.

Basically, question is telling you that you are financing 6,000 over a certain period of time, and it is asking you what the total cost will be after taxes and interest.

Mike,
I understood that $6000 will be the remaining amount that requires financing, but I could not understand how would you derive the interest rate?

Basically, all you need to know is the payment and time period, exactly what the two questions tell you.

Note: with DS, sometimes it is not a matter of solving the problem, but simply realizing that you have sufficient evidence to answer it.

I was able to rule out (i) and (ii) individually, but did not know how to deduce interest rate. Any insight in this matter will be great!

[mike22629]

This is where the question attempts to trick the test taker. Theoretically, you can find out that

3 years = 36 months

3600*200 = 7200

Which means 1200 of the money paid will be interest and taxes.

Now, there is no way of determing how much of the 1200 is interest and how much is taxes, BUT IT DOESNT MATTER.

All you need to know is that there is 1200 in taxes and financing making the total cost of the car = 9200

All the question asks is for the total cost, if it asked for the interest rate, then the answer would be E.

Hope this makes it easier

[mike22629]

Oh wait, just re-read question. The original price includes the taxes, hence the 1200 would be solely interest.

So I guess you could find it out.

(This is assuming it is simple interest)
Interest Paid = Principal*(1+(r/100))^(number of years)

1200 = 6000(1+(r/100)^3

Then solve for r.

But the point still remains, that is not necessary to answer the question. All you need to know is the total,

Furthermore, you could not definitely find out the interest rate because it does not tell you what type of interest it is. Does it compound annually? semi-annually? or is it simple interest?

[kanha81]

makes sense. Thanks a lot!