In: Finance
Derek decides to buy a new car. The dealership offers him a choice of paying $591.00 per month for 5 years (with the first payment due next month) or paying some $28,252.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options?
using excel rate function
interest rate = RATE(number_of_periods, payment_per_period, present_value, [future_value], [end_or_beginning], [rate_guess]) * number of compounds
= RATE(5*12,591,-28252) * 12
= 9.33%