You are considering the purchase of a shiny new convertible! The dealer is desperate to sell the
Question:
You are considering the purchase of a shiny new convertible! The dealer is desperate to sell the car, and offers you a choice of two deals:
Buy the car at its full price, $20,000, but finance it at the below market interest rate of 1% (EAR). In this case, you’d put down $5,000 in cash today, and borrow the rest of the purchase price from the dealer. The loan would require you to make equal payments at the end of each of the next 5 years (i.e. the payments would be 1, 2, 3, 4 and 5 years from today).
Pay cash, but get the car for a discount of 15% off list price (i.e., $17,000). Assume you have plenty of cash in the bank, earning an interest rate of 8% per year.
a. How big is each payment on the car loan? [5]
b. What is the remaining balance on the loan immediately after you make the payment 3 years from today? [5]
c. Assuming you are definitely going to buy the car, which option should you choose? [10]
Please be detailed! And no calculations in excel
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts