An auto dealership is advertising that a new car with a sticker price of $28,008 is on sale for $25,995 if payment is made in full, or it can be financed at 0 percent interest for 72 months with a monthly payment of $389. Note that 72 payments $389 per payment = $28,008, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995.

If you choose the 0 percent financing option, what is the effective interest rate that the auto dealership is earning on your loan? Hint: Discount the payments back to current dollars, and use Goal Seek to find the discount rate that makes the sum of all the present values of the payment = $25,995.