Sofia wants to buy a new car and is offered a very low monthly repayment by the bank. She discovers the reason for this is that they have included a residual/balloon payment of 35%.

Answer the questions that follow.

1) What is a residual or balloon payment?

2) Calculate the residual amount if Sofia’s car costs R 227 500.

3) Calculate the monthly repayments that Sofia will have to make on her new car.

4) If Sofia’s car depreciates at a rate of 21% per year, calculate the value of her car after 60 months.

5) Will Sofia be able to completely pay off her balloon payment by trading in her car?