Your client wishes to insure their Lamborghini. MooncorpInsurance has quoted an annual premium to insure the car of$40,000. Mooncorp offers a 4% discount if you pay the lump sumimmediately. They also offer an alternative payment method. Theaccount can be paid in full by making 12 equal end-of-the monthpayments of $3,500, rather than the lump sum, with the firstpayment due in one month.

What is the effective annual opportunity cost of paying monthly?In other words, what effective annual interest rate is beingcharged if your client decides to use the repayment plan as opposedto the lump sum? You must provide one complete manual trialcalculation of the IRR to demonstrate that you understand theprocess.

Answer rating: 100% (QA)

To calculate the effective annual opportunity cost or the effective annual interest rate charged for the monthly repayment plan we need to calculate t... View the full answer