You are planning on buying a car and see that Toyota is advertising a promotional borrowing rate on a Toyota Prius. You can pay cash to purchase the Prius for $24,625 or pay $2,000 up front and the remaining balance in 2 years.

You will be charged a monthly interest rate of 0.25%. Elsewhere (such as your bank account) borrowing and lending is done at a rate of .5% per month:

1) What is the true economic cost of purchasing the Prius if you pay all cash upfront?

2) If you were to accept the financing, how much money would you owe Toyota in 2 years?

3) What is the true cost in today's dollars if you accept Toyota's financing?

4) Should you borrow from Toyota to purchase the car?