An automobile is “priced” at $7,000. A buyer may purchase the car for $6,500 now or, alternatively, the buyer can make a down payment of $1,000 now and pay the remaining $6,000 in 8 equal quarterly payments (over 2 years) at 8% compounded quarterly. Solve, a. If the buyer’s TVOM is 10% per year compounded quarterly, would the buyer prefer to pay the $6,500 outright or make the down payment and the quarterly payments? b. What is the effective annual interest rate at which these two payment options are equivalent?
An automobile is “priced” at $7,000. A buyer may purchase the car for $6,500 now or, alternatively, the buyer can make a down payment of $1,000 now and pay the remaining $6,000 in 8 equal quarterly payments (over 2 years) at 8% compounded quarterly. Solve, a. If the buyer’s TVOM is 10% per year compounded quarterly, would the buyer prefer to pay the $6,500 outright or make the down payment and the quarterly payments? b. What is the effective annual interest rate at which these two payment options are equivalent?
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
Problem 1PS
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An automobile is “priced” at $7,000. A buyer may purchase the car for $6,500 now or, alternatively, the buyer can make a down payment of $1,000 now and pay the remaining $6,000 in 8 equal quarterly payments (over 2 years) at 8% compounded quarterly. Solve, a. If the buyer’s TVOM is 10% per year compounded quarterly, would the buyer prefer to pay the $6,500 outright or make the down payment and the quarterly payments? b. What is the effective annual interest rate at which these two payment options are equivalent?
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