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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%.

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?
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1. A residual is a repayment that is made at the end of a loan period in a lump sum

2.  227 500 ×35%=R79 625 residual amount

3.  227 500− 79 625= 147 875

$FV =147 875 (1+0.08)^5$
= 217 276.89
217 276.89/60 months= R3 621.28 payment per month
4. Y1:  227 500−21%=  179 725     Y2:  179 725−21%= 141 982.75
Y3: 141 982.75−21%= 112 166.37     Y4: 112 166.37−21%= 88 611.43
Y5: 88 611.43−21%=R 70 003.03 is the value of the car after 60 months

5. Residual . Value  of the car
No. Sofia will not be able to pay off the residual completely by trading in her car.
by Wooden (4,484 points)

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