Question: In its Year End Countdown Sale a local Cadillac car dealer
In its “Year-End Countdown Sale,” a local Cadillac car dealer advertised “0% interest for 60 months!” What role does the time value of money play in this promotion? Assuming that the car dealer is able to borrow funds at 8 percent interest, what is the cost to the dealer of every customer who takes advantage of this offer? If you could borrow money to buy a car from this dealer, which rate would be more relevant in determining how much you might offer for the car: the rate at which you borrow money, or the rate at which the dealer borrows money?
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