Answers:Mathematical Modeling-Frank R. Giordano(5Version)-1.1 PROJECTS

$$M=\frac{Pr(1+r{)}^n}{(1+r{)}^n-1}$$

Where:

• $M$ = Monthly payment
• $P$ = Loan amount (Car price - Cash Down)
• $r$ = Monthly interest rate ($\frac{\text{APR}}{12\times 100}$)
• $n$ = Number of months

Let’s calculate the monthly payments for each car and compare them to your $500 budget.

You can afford the following cars based on your $500/month budget:

1. Ford Fiesta – $255.41/month
2. Ford Focus – $370.93/month
3. Chevy Cruz – $303.14/month
4. Toyota Camry – $431.09/month
5. Toyota Corolla – $289.06/month
6. Toyota Prius – $351.56/month

The Chevy Volt and Toyota Camry Hybrid exceed your budget. Would you like additional details or recommendations based on fuel efficiency?

2. We will use the loan payment formula:

$$M=\frac{Pr(1+r{)}^n}{(1+r{)}^n-1}$$

Where:

• $M$ = Monthly payment
• $P$ = Loan amount (Remaining balance after 8 years for refinancing)
• $r$ = Monthly interest rate ($\frac{\text{APR}}{12\times 100}$)
• $n$ = Number of months

We will:

1. Calculate the original monthly payment for a 30-year (360-month) mortgage with 0.4% monthly interest.
2. Determine the remaining balance after 8 years (96 months).
3. Compute the new monthly payments for refinancing options:
   • 20-year loan at 4% APR (0.04/12 monthly interest)
   • 15-year loan at 3.8% APR (0.038/12 monthly interest)
4. Compare the new payments and decide if refinancing is beneficial.

Let’s compute these values.

Here are the results:

1. Original 30-year mortgage (0.4% monthly interest)

   • Monthly payment: $1311.66
   • Remaining balance after 8 years: $213,611.64

2. Refinancing options (including $2500 closing costs):

   • 20-year loan at 4% APR → New monthly payment: $1309.59
   • 15-year loan at 3.8% APR → New monthly payment: $1576.98

Should You Refinance?

• The 20-year loan keeps your payment nearly the same ($1309.59 vs. $1311.66) while reducing your remaining loan term from 22 years to 20 years, saving interest in the long run.
• The 15-year loan increases your payment to $1576.98, but you pay off the loan 7 years faster and save significantly on interest.

Recommendation:

• If you can afford the higher monthly payment, the 15-year loan is the best option, as it reduces interest costs.
• If you want to keep payments similar while shortening your term, the 20-year loan is a solid choice.
• If you plan to move soon, refinancing may not be worth the closing costs.

# Given loan details
loan_amount = 250000  # Initial mortgage
initial_apr = 0.4 * 12  # Convert monthly rate to yearly (4.8% APR)
initial_months = 360  # 30 years

# Refinancing options
refinance_20_apr = 4.0  # 4% per year
refinance_15_apr = 3.8  # 3.8% per year
refinance_20_months = 240  # 20 years
refinance_15_months = 180  # 15 years
closing_costs = 2500  # Cost of refinancing
years_paid = 8
months_paid = years_paid * 12  # 96 months

# Function to calculate monthly payment
def monthly_payment(P, apr, months):
    r = (apr / 100) / 12  # Convert APR to monthly interest rate
    if r == 0:
        return P / months  # Simple division if 0% interest
    return (P * r * (1 + r)**months) / ((1 + r)**months - 1)

# Compute initial monthly payment
initial_monthly_payment = monthly_payment(loan_amount, initial_apr, initial_months)

# Compute remaining balance after 8 years
remaining_balance = loan_amount * ((1 + (initial_apr / 100) / 12)**months_paid) - (
    (initial_monthly_payment * ((1 + (initial_apr / 100) / 12)**months_paid - 1)) / ((initial_apr / 100) / 12)
)

# Compute new monthly payments after refinancing
new_loan_20 = remaining_balance + closing_costs
new_loan_15 = remaining_balance + closing_costs

new_payment_20 = monthly_payment(new_loan_20, refinance_20_apr, refinance_20_months)
new_payment_15 = monthly_payment(new_loan_15, refinance_15_apr, refinance_15_months)

# Output results
initial_monthly_payment, remaining_balance, new_payment_20, new_payment_15