You want to buy a new Honda Accord which has a price of $38,000. The dealership offers you two options:

You will receive a $3,000 cash back rebate if you pay for the car fully today.
You can finance the car at full price at the dealership's interest rate of 6.55% p.a., compounded quarterly. The financing period is seven years. At the end of seven years, you will have fully paid for the entire car. Payments will be monthly, at the beginning of the month. The payment amount will be equal for all payments.

a) If you choose to finance it through the dealership, what will your monthly payments be?

b) Now suppose you meet the bank and the bank is willing to lend you money to buy the car today. The loan will be for seven years, with beginning of month, equal monthly payments. At the end of seven years, the loan will be fully repaid. What is the maximum effective annual interest rate you would be willing to pay the bank?

Answer rating: 100% (QA)

Solution Fiven data Price of Honda Accord 38000 Cosh bock if Pay Jully today 3o00 Cerapeund I... View the full answer