An automobile is priced at \($7\),000. A buyer may purchase the car for \($6\),500 now, or alternatively, the buyer can make a down payment of \($1\),000 now and pay the remaining \($6\),000 in eight equal quarterly payments (over 2 years)

at 8 percent compounded quarterly.

a. If the buyer’s TVOM is 10 percent per year compounded quarterly, would the buyer prefer to pay the \($6\),500 outright, or make the down payment and the quarterly payments?

b. What is the effective annual TVOM at which these two payment options are equivalent?