You are shopping for a car and read the following advertisement in the newspaper: “Own a new Spitfire! No money down. Four annual payments of just $10,000.” You have shopped around and know that you can buy a Spitfire for cash for $32,500. What is the interest rate the dealer is advertising (what is the IRR of the loan in the advertisement)? Assume that you must make the annual payments at the end of each year.
Answer to relevant QuestionsA local bank is running the following advertisement in the newspaper: “For just $1000 we will pay you $100 forever!” The fine print in the ad says that for a $1000 deposit, the bank will pay $100 every year in ...You are considering moving your money to a new bank offering a one-year CD that pays an 8% APR with monthly compounding. Your current bank’s manager offers to match the rate you have been offered. The account at your ...Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.25%. With this mortgage your monthly payments would be $2000 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the ...Your best friend consults you for investment advice. You learn that his tax rate is 35%, and he has the following current investments and debts:A car loan with an outstanding balance of $5000 and a 4.8% APR (monthly ...What is the price of a three-year, default-free security with a face value of $1000 and an annual coupon rate of 4%? What is the yield to maturity for thisbond?
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