1. Suppose you need a $10,000 loan from the car dealer to buy the car you wish. The dealer offers you a choice of three ways to pay back the loan 1. $250 a month for 4 years 2. $1000 every 6 months for 6 years..

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question:
1. Suppose you need a $10,000 loan from
the car dealer to buy the car you wish.
The dealer offers you a choice of three
ways to pay back the loan
1. $250 a month for 4 years
2. $1000 every 6 months for 6 years..
3. No payments for the first year, then
$600 quarterly for 5 years
Notice that the total payments amount
to the same in each case: $12,000. But
the deals are not equally good. Which is
the best deal in terms of the implied
interest rate? (Specify both the nominal
and the effective rate for each
arrangement)
1. nominal:
2. nominal:
3. nominal:
effective:
effective:
effective:
Transcribed Image Text:Question: 1. Suppose you need a $10,000 loan from the car dealer to buy the car you wish. The dealer offers you a choice of three ways to pay back the loan 1. $250 a month for 4 years 2. $1000 every 6 months for 6 years.. 3. No payments for the first year, then $600 quarterly for 5 years Notice that the total payments amount to the same in each case: $12,000. But the deals are not equally good. Which is the best deal in terms of the implied interest rate? (Specify both the nominal and the effective rate for each arrangement) 1. nominal: 2. nominal: 3. nominal: effective: effective: effective:
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