Two dealers compete to sell you a new car with a list price of $45000. Dealer...

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Two dealers compete to sell you a new car with a list price of $45000. Dealer A offers to sell it for $40000 if you pay cash. Dealer B offers to sell it for $46000 with a "0-percent financing" option: you will have to pay 48 equal monthly payments of $958.33. That is to say, Dealer B offers: 48*958.33=46000< Assume that the first monthly payment is one month after you take possession of the car. In calculation, use $958.33 as your monthly payment.< Suppose that you can finance the purchase by withdrawals from a money market fund, which earns an effective annual rate of 2% per year. (al) If you take the financing offer from Dealer B, what is the present value of your monthly payments?< (a2) Which offer do you prefer, Dealer A's or Dealer B's?< Now suppose you always carry unpaid balances on your credit card, which charges an effective annual rate of 17% per year. (b1) If you take the financing offer from Dealer B, what is the present value of your monthly payments? (b2) Which offer do you prefer, Dealer A's or Dealer B's?< Two dealers compete to sell you a new car with a list price of $45000. Dealer A offers to sell it for $40000 if you pay cash. Dealer B offers to sell it for $46000 with a "0-percent financing" option: you will have to pay 48 equal monthly payments of $958.33. That is to say, Dealer B offers: 48*958.33=46000< Assume that the first monthly payment is one month after you take possession of the car. In calculation, use $958.33 as your monthly payment.< Suppose that you can finance the purchase by withdrawals from a money market fund, which earns an effective annual rate of 2% per year. (al) If you take the financing offer from Dealer B, what is the present value of your monthly payments?< (a2) Which offer do you prefer, Dealer A's or Dealer B's?< Now suppose you always carry unpaid balances on your credit card, which charges an effective annual rate of 17% per year. (b1) If you take the financing offer from Dealer B, what is the present value of your monthly payments? (b2) Which offer do you prefer, Dealer A's or Dealer B's?<

Answer rating: 100% (QA)

a1 To calculate the present value of the monthly payments from Dealer B we can use the formula for t... View the full answer