Question
In: Finance
Lina Martinez wants to buy a new high-end audio system for her car. The system is...
- Lina Martinez wants to buy a new high-end audio system for her car. The system is being sold by two dealers in town, both of whom sell the equipment for the same price of $2,000. Lina can buy the equipment from Dealer A, with no money down, by making payments of $175.83 a month for 12 months; she can buy the same equipment from Dealer B by making 36 monthly payments of $68.36 (again, with no money down). Lina is considering purchasing the system from Dealer B because of the lower payment.
- Find the APR for Dealer A. Use a financial calculator to find the answer. Round the answer to 2 decimal places. (1)
- Find the APR for Dealer B. Round the answer to 2 decimal places. (1)
What do you recommend? (1)
Solutions
Expert Solution
a) We are given the following information
| Monthly payment | PMT | $ 175.83 |
| rate of interest | r | To be calculated |
| number of years | n | 1 year or 12 |
| Annual Compounding | frequency | 12 |
| Cost at time 0 | PV | $ 2,000.00 |
We need to solve the following equation to arrive at the
required r
b) We are given the following information
| Monthly payment | PMT | $ 68.36 |
| rate of interest | r | To be calculated |
| number of years | n | 3 years or 36 |
| Annual Compounding | frequency | 12 |
| Cost at time 0 | PV | $ 2,000.00 |
We need to solve the following equation to arrive at the
required r
c) She should go with Dealer A as the interest rate paid is lower.
If we calculate the total amount paid, for dealer A it would be
175.83 x 12 = 2109.96 while that for dealer B would
be $2,460.96 the difference is due to higher interest
rate so even with lower payments, total interest paid is higher in
case of dealer B
jeff jeffy answered 2 years agoRelated Solutions
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