A plan that will allow penny to purchase the car and go on a vacation.

Question

Penny is buying a used car for $6000. She has $2000 in her savings. Penny plans to borrow the entire $6000 at %5 and her savings to go on a vacation. Penny's best friend tells her that this is not a financially responsible descision. Write a plan that will allow penny to purchase the car and go on a vacation.

Answer 1

Hi Mike, with Penny's current plan, at the end of the vacation she'll be left with:

 

1 car

$0 in savings

$6000 + .05*$6000 = $6300 dollars in debt

 

If she uses some of her savings on a down payment for a car, say $600 and the rest of the money for a vacation, at the end of the vacation she'll have:

 

1 car

$0 in savings

$5400 + .05*$5400 = $5670 in debt 

 

She could also spend less on a vacation and end up with the same scenario as above, but more than $0 in savings.

 

Let me know if you'd like to discuss this and any other questions in person!

 

Nick