Question
You are considering purchasing a vehicle. You can buy it at the local dealership which will finance the purchase, or you can purchase it on
You are considering purchasing a vehicle. You can buy it at the local dealership which will finance the purchase, or you can purchase it on Craigslist, but you have to pay cash for it. The local dealer has offered you the following "special deal."
| Face value | 20,000 |
| Coupon rate | 1.0% |
| Market rate | ??? |
| Term of note | 5 |
You can buy it on Craigslist for the following.
| Fair value of the vehicle | 16,000 |
Assuming equal annual payments of principal and interest, what is the actual interest rate the dealership is charging?
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Financial Accounting Tools For Business Decision Making
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
4th Edition
0471730513, 978-0471730514
