your client wants to buy a new car. the financing terms are: sticker price: 100,000.00 usd cash discount of 21% or 48 monthly payements with no interest: calculate the effective annual rate that your client actually has to pay. you will need your financial calculator for this.
your client wants to buy a new car. the financing terms are:
sticker price: 100,000.00 usd
cash discount of 21%
or 48 monthly payements with no interest:
calculate the effective annual rate that your client actually has to pay. you will need your financial calculator for this.
Upfront purchase price = $ 100,000 - 21% discount = 79,000
Hence, PV = - 79,000
Otherwise under installment scheme, regular payment = PMT = 48 monthly payements with no interest = 100,000 / 48 = 2083.333333
Period = 48
Hence, interest rate per period = interest rate per month can be calculated using the financial calculator and / or RATE function of excel.
Use of financial calculator:
Inputs are: n = 48, PMT = 2083.333, PV = -79000, FV = 0, i = ???
The output will be i = 1.0064%
Hence, effective annual rate = (1 + 1.0064%)12 - 1 = 0.127676453 = 12.77%
Use of Excel:
Hence, interest rate per month = RATE(Period, PMT, PV, FV) = RATE(48, 2083.3333, -79000, 0) = 1.0064%
Hence, the effective annual rate = (1 + 1.0064%)12 - 1 = 0.127676453 = 12.77%
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