An auto dealership is advertising that a new car with a sticker price of $33,768 is on sale for $25,995 if payment is made in full, or it can be financed at 0% interest for 72 months with a monthly payment of $469. Note that 72 payments × $469 per payment = $33,768, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995. If you choose the 0% financing option, what is the effective interest rate that the auto dealership is earning on your loan? (Hint: Discount the payments back to current dollars, and use Goal Seek to find the discount rate that makes the net present value of the payments = $25,995.)
An auto dealership is advertising that a new car with a sticker price of $33,768 is on sale for $25,995 if payment is made in full, or it can be financed at 0% interest for 72 months with a monthly payment of $469. Note that 72 payments × $469 per payment = $33,768, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995. If you choose the 0% financing option, what is the effective interest rate that the auto dealership is earning on your loan? (Hint: Discount the payments back to current dollars, and use Goal Seek to find the discount rate that makes the
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
