An advertisement for Ford trucks offered "2.9% financing (for 48 months) or $2,000 cash back." A...

An advertisement for Ford trucks offered "2.9% financing (for 48 months) or $2,000 cash back." A truck buyer financed $20,000 at the low interest rate instead of paying $18,000 cash (after the $2,000 rebate).

What was the effective rate of interest on the loan if the forgone cash rebate is treated as part of the cost of financing? (The 2.9% interest rate is a monthly compounded nominal rate.)

Solutions

Expert Solution

Effective cost, taking the foregone rebate as cost of borrowing= 8.28011%

Calculation as below:

jeff jeffy answered 2 years ago

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