You are considering buying a new car worth $I5,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly or by borrowing $I5,000 from your dealer for four years at I I% interest compounded monthly. You could earn $5,635 in interest from your savings account in four years if you leave the money in the account. If you borrow $15,000 from your dealer, you pay only $3,609 in interest over four years, so it makes sense to borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the foregoing statement? Justify your reasoning with a numerical calculation.
You are considering buying a new car worth $I5,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly or by borrowing $I5,000 from your dealer for four years at I I% interest compounded monthly. You could earn $5,635 in interest from your savings account in four years if you leave the money in the account. If you borrow $15,000 from your dealer, you pay only $3,609 in interest over four years, so it makes sense to borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the foregoing statement? Justify your reasoning with a numerical calculation.
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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You are considering buying a new car worth $I5,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly or by borrowing $I5,000 from your dealer for four years at I I% interest compounded monthly. You could earn $5,635 in interest from your savings account in four years if you leave the money in the account. If you borrow $15,000 from your dealer, you pay only $3,609 in interest over four years, so it makes sense to borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the foregoing statement? Justify your reasoning with a numerical calculation.
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