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Natali5045456 [20]
3 years ago
15

Edward is in the process of purchasing a car. The list price of the car is $41500. If Edward pays cash for the car, the dealer w

ill reduce the price by 10%. Otherwise, the dealer will provide financing where Edward must pay $8880 at the end of each of the next five years. Compute the effective interest rate to the nearest percent that Edward would pay if he chooses to make the five annual payments
Business
1 answer:
SpyIntel [72]3 years ago
8 0

Answer: Effective interest rate = 1.36% = 1% rounded of to the nearest percent

Explanation:

Total amount payable = 8880 x 5 = $44400

Price = 41500

FV = P(1 + r)^n

44400 = 41500(1 + r)^5

(1 + r)^5 =44400/41250

\sqrt[5]{(1 + r)^5} = \sqrt[5]{1.0698795181}

1 + r = 1.0136008701

r =  1.0136008701 - 1 = 0.0136008701

Effective interest rate = 1.36% = 1% rounded of to the nearest percent

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