Consider the following two options for financing a car: Option A. Purchase the vehicle at the normal
Question:
Consider the following two options for financing a car:
Option A. Purchase the vehicle at the normal price of $26,200 and pay for the vehicle over three years with equal monthly payments at 0% APR financing.
Option B. Purchase the vehicle for a discount price of $24.048 to be paid immediately. The funds that would be used to purchase the vehicle are presently earning 5% annual interest compounded monthly.
(a) What is the meaning of the APR of 0% quoted by the dealer?
(b) Under what circumstances would you prefer to go with the dealer’s financing?
(c) Which interest rate (the dealer’s interest rate or the savings rate) would you use in comparing the two options?
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a The dealers interest rate to calculate the loan repayment schedule b Required mon...View the full answer
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