You are considering buying a flying car with a MSRP

$($manufacturer$\text{'}$s suggested retail price$)$ of $$600,000$

$$The car dealer has offered you two alternatives for purchasing the car: You can buy the car for $$540,000$ in cash and get a $$60,000$

$$discount OR you can buy the car for $$600,000$ with a down payment of $$280,000$

$$

The balance can be paid with a zero interest loan to be paid back in

$36$ equal monthly installments.

Your bank is willing to give you a

$3$ year$-$loan $($that will require monthly payments$)$

$$at an annual rate of $12\%$ to fund option A

$$Decide which option you should choose to finance the car.

The assumption is that you have $$280,000$ cash and any additional money would need to be borrowed or financed. In your work, calculate what the effective borrowing rate is when you finance with the dealer. HINT $=$this problem is simple but complex.

The real question is how much does the car really cost? The answer is the amount that you could purchase with cash. Anything above that is hidden finance charges.

Be sure you figure out both options and calculate the effective annual rate of borrowing or EAR.

$************************************************$

NOTE:

$***$Option A: is paying

$540,000$ for the car $(600,000-60,000$ discount $=540,000)$ and the option to finance the rest with the bank

$($because we do not have enough cash, and you need the banks cash to pay for this discounted option$)$

$$OR

$***$Option B: is paying $600,000$

$$for the car, using our $$280,000$

$$cash$,$ with no discount, and no option to work with the bank for financing but can use the zero interest loan in

$36$ monthly payments. The bank WILL NOT finance this option.

$......................................$

Please find the actual cost for each option, and the EAR for each option.