Chapter 7 Financial Planning Exercise 11 Calculating and comparing APRs of competing financing alternatives

Lina Martinez wants to buy a new high-end audio system for her car. The system is being sold by two dealers in town, both of whom sell the equipment for the same price of $2,000. Lina can buy the equipment from Dealer A, with no money down, by making payments of $175.83 a month for 12 months; she can buy the same equipment from Dealer B by making 36 monthly payments of $68.36 (again, with no money down). Lina is considering purchasing the system from Dealer B because of the lower payment.

Find the APR for Dealer A. Use the financial calculator or Exhibit 7.6 to find the answer. Round the answer to 2 decimal places. % Find the APR for Dealer B. Round the answer to 2 decimal places. % What do you recommend?