You want to buy a piece of land and the owner would sell it to you for $20,000 cash. Alternatively, he would let you pay for it with five annual installments of $5,000 each, the first one due right now. What is the implied interest rate here?

You want to buy a piece of land and the owner would sell it to you for $20,000 cash. Alternatively, he would let you pay for it with five annual installments of $5,000 each, the first one due right now. What is the implied interest rate here?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 1QTD

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

You want to buy a piece of land and the owner would sell it to you for $20,000
cash. Alternatively, he would let you pay for it with five annual installments of $5,000 each, the first one due right now. What is the implied interest rate here?

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