Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Susan is evaluating a new car purchase. She is provided with two options by the dealership: $5,000 cash back or 0% financing for 60 months
Susan is evaluating a new car purchase. She is provided with two options by the dealership: $5,000 cash back or 0% financing for 60 months on the $40,000 car that she wants to buy. Susan determines that the cash back is the best option, as her alternative choice is to borrow from the bank at 1.99% APR, compounded monthly, for 60 months. Prior to finalizing her choice, the bank calls Susan back and tells her that because of Federal Reserve rate hikes, the new interest rate at the bank is 5.99% APR. With this new interest rate, should Susan reconsider her choice of the cash back option? Yes, the value of the 0% financing increases with the higher rate at the bank No, the value of the 0% financing decreases with the higher rate at the bank Yes, the cash back option now has higher present value No, the cash back option now has lower present value
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started