For this question, assume the interest rate is 10% p.a. compounded yearly.

Tom is considering buying a VW Golf. The car has a price tag of $10,000. Tom is about to walk into a dealership to pay down $10,000 cash, but his mate Jerry stops him and tells him the following

"If you don't buy this car, you will get $1,000 interest every year so just imagine if you leave it in the bank for 5 years, you will get at least $5,000 interests! So if you buy it now, it actually costs you more than $15,000! Just think about it Tom!"

Tom is a bit confused and decides to come to you for help, knowing you go to an elite university to learn finance.

Please advise Tom whether Jerry is right. Discuss whether your advice will change if this is a competitive market or a one-sided market.