Problem
A used car dealer advertises financing at 4% interest over 3 years with monthly payments. You must pay a processing fee of $250 at signing. The car you like costs $6000.
(a) What is your effective annual interest rate?
(b) You believe that the dealer would accept $5200 if you paid cash. What effective annual interest rate would be paying if you financed with the dealer?
(c) Compare these answers with those for Problem 7-45. What can you say about what matters the most for determining the effective interest rate?
Problem 7-45
A used car dealer advertises financing at 0% interest over 3 years with monthly payments. You must pay a processing fee of $250 at signing. The car you like costs $6000.
(a) What is your effective annual interest rate?
(b) You believe that the dealer would accept $5200 if you paid cash. What effective annual interest rate would you be paying, if you financed with the dealer?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.