5. Answer the following 3 questions using the concepts of time value of money:

1. A car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 0 percent APR, 4-year loan. The price of the car is $20,000 and you could obtain a 4-year loan from your credit union, at 7 percent APR. Which deal is cheaper? Why?

2. Partners Bank offers to lend you $50,000 at a nominal rate of 5.0%, with interest paid quarterly. An offer to lend you the $50,000 also comes from Community Bank, but it will charge 6.0%, with interest paid at the end of the year. What's the difference in the effective annual rates charged by the two banks?

3. A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,000. At an interest rate of 10%, should you pay the $1,000 today to receive payment numbers 26 and onwards? What does this suggest to you about the value of perpetual payments?