You are buying a new Porsche Boxter, priced at $65,200. You will pay $4,700 now and the

Question:

You are buying a new Porsche Boxter, priced at $65,200. You will pay $4,700 now and the rest monthly, in a four-year loan. All rates are APRs. The automobile dealership is offering a sales promotion where either:

a. You will receive a $2,000 discount cheque now and the annual interest rate on the loan is 6.1 percent,

b. The annual interest rate on the loan will be 1.2 percent but there is no discount.

Compare the two options by calculating the present value of each option, assuming the discount rate is 8 percent. Which option is a better deal?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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