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In: Accounting

Suppose you are considering purchasing RadRover 5, the electric fat bike of the year 2020, that...

Suppose you are considering purchasing RadRover 5, the electric fat bike of the year 2020, that retails at a price of $1600. The bike dealer offers you the following financing scheme. Pay $600 as down payment today and finance the remainder $1000 from the dealer at 200% EAR, with daily compounding. You are required to repay the amount financed in 30 equal daily payments starting tomorrow. The scheme also comes with an option to “extinguish” the loan anytime during the next month by repaying the outstanding balance at the start of a day in one lump sum payment.

      A) What is the daily payment amount that you will have to pay to the dealer?

   B) Your elder brother has agreed to help you extinguish the loan if you can demonstrate to him that you can make regular loan payments for at least 4 consecutive days. How much will it cost your brother to extinguish the loan at the start of day 5 if you have already made first of your 4 daily payments.

C) How much profit (at the end of next month) would the dealer make over and above the $1600 retail price if you made all the promised payments?

Solutions

Expert Solution

Hope this suffices.

ekkarill92 answered 2 years ago
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