You have decided to buy a car, the price of the car is $18,000. The car dealer presents you with two choices: Purchase the car for cash and receive $2000 instant cash rebate – your out of pocket expense is $16,000 today. Purchase the car for $18,000 with zero percent interest 36-month loan with monthly payments. The market interest rate is 4%. Which of the option above is cheaper? How much do you save? Formula attached
You have decided to buy a car, the price of the car is $18,000. The car dealer presents you with two choices: Purchase the car for cash and receive $2000 instant cash rebate – your out of pocket expense is $16,000 today. Purchase the car for $18,000 with zero percent interest 36-month loan with monthly payments. The market interest rate is 4%. Which of the option above is cheaper? How much do you save? Formula attached
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
Related questions
Question
100%
- You have decided to buy a car, the price of the car is $18,000. The car dealer presents you with two choices:
- Purchase the car for cash and receive $2000 instant cash rebate – your out of pocket expense is $16,000 today.
- Purchase the car for $18,000 with zero percent interest 36-month loan with monthly payments.
The market interest rate is 4%. Which of the option above is cheaper? How much do you save?
Formula attached
![Future and Present Value
1. FV = C(1+r)"
%3D
2. PV =
(1+r)T
3. FV = PV(1 +r)"
%3D
4. r D
PV
FVT
-1
Inv)
5. Т-
PV
%3D
In(1+r)
Annuity
1. PV = P[1-
pmt
1
(1+r)".
PV r
2. ртt %3D
(1+r)"
[In(pmt)-In(pmt-PV•1)]
In(1+r)
3. Т—
pmt
4. FV =[(1 +r)"
Annuity Due
pmt
1
(1+r)" (1+r)
[(1 +r)" – 1](1 +r)
5. PV :
6. FV =
jud
EAR & APR
m
1. EAR = (1+4)-1
2. APR = m[(1+ EAR) – 1]
%3D
m](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F10c7525c-c416-4320-97b0-471febd6b171%2F285d95a7-aa3a-4423-9d9f-560a4f7ef622%2F920owc8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Future and Present Value
1. FV = C(1+r)"
%3D
2. PV =
(1+r)T
3. FV = PV(1 +r)"
%3D
4. r D
PV
FVT
-1
Inv)
5. Т-
PV
%3D
In(1+r)
Annuity
1. PV = P[1-
pmt
1
(1+r)".
PV r
2. ртt %3D
(1+r)"
[In(pmt)-In(pmt-PV•1)]
In(1+r)
3. Т—
pmt
4. FV =[(1 +r)"
Annuity Due
pmt
1
(1+r)" (1+r)
[(1 +r)" – 1](1 +r)
5. PV :
6. FV =
jud
EAR & APR
m
1. EAR = (1+4)-1
2. APR = m[(1+ EAR) – 1]
%3D
m
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