Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:1.
You have two options to purchase a car. Your first option is to purchase the car at $26.200
and pay for it over 36 months with equal monthly payments at 1.9 % interest per year. The
second option is for you to purchase the car immediately with cash at a rebate or discounted
price lower than $25,000.
C.
a. Draw a cash flow diagram for the first option
b. Using the appropriate compounding interest factor provided on the formula sheet,
determine your monthly payments
Draw the cash flow diagram that will enable you to determine the equivalent
present cost of the total loan repayments you made in (b) above, if funds are
presently earning 5 % annual interest compounded annually
d. Using the appropriate compounding interest factor provided on the formula sheet,
determine the equivalent present cost of the total loan repayments.
e.
Which of the two options will you choose and why?
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