Stephen paid $20,000 for his car 3 years ago. He still has 24 monthly payments of $400 left to pay, and currently the balance on his auto loan is $9,000. He estimates the market value of his vehicle to be $13,000. What is his equity or ownership position in his car?

a. $4,000

b. $2,400

c. $8,000

d. $11,000

Option (a) $4,000

Explanation:

Data provided in the question:

Amount paid for the car = $20,000

Monthly installments left = 24

Current balance on the auto loan = $9,000

Market value of the vehicle = $13,000

Now,

Value of assets = Market value of the vehicle = $13,000

Liabilities = Current balance on the auto loan = $9,000

Also,

Assets = Equity + Liabilities

or

Equity = Assets - Liabilities

or

Equity = $13,000 - $9,000

= $4,000

Hence,

Option (a) $4,000