1. What do you think of Prof. Keppel's calculations? Verify that the numbers for interest paid ($4,779.20) and interest earned ($5,672.56), quoted in the article, are correct (within rounding). What should one conclude from them?

2. What do you think of "Sperling's rule" [that it's a good idea to borrow if you can earn an interest rate equal to at least half the interest rate on your loan]? Do you agree? Why might these numbers be not sufficient for deciding whether paying cash or taking out the car loan is a better deal?

3. Evaluate the proposal that you borrow rather than pay cash using present value calculations. Do this by calculating the present value of your car payments if you pay cash and the present value of your car payments if you take out the car loan (think carefully about which interest rate to use in your present value calculations).

Answer rating: 100% (QA)

1 To verify Prof Keppels calculations we need to compute the interest paid and interest earned based ... View the full answer