Selection of Payment Form Jane Keen decided on January 1, 2001, to purchase a new car as a reward for graduating from college and accepting a job. The car dealer has offered to sell her the model she likes most for payments of $650 at the end of each month for 48 months based on an annual interest rate of 18 percent. However, Jane may be able to pay cash to purchase the car. On January 1, 2001, she received a $20,000 par value bond from her grandmother. The bond matures in 12 years and pays interest of 10 percent annually at December 31. The market rate of interest for similar bonds on January 1, 2001, is 8 percent. Interest computations on the car loan and bond require use of the effective-interest method.

a. If Jane wishes to pay cash for the car, how much would she have to pay on January 1, 2001?

b. If Jane wishes to sell the bond on January 1, 2001, how much cash would she receive?

c. How much additional cash would Jane have to contribute, or how much cash would she have left if she sold the bond and paid for the car in cash?

d. What other options might Jane consider?