Derek decides to buy a new car. The dealership offers him a choice of paying $532.00 per month for 5 years (with the first payment due next month) or paying some $28,528.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options? ( round to 3 decimal places as a percentage). (i.e 1.234%).
|Let Discount the Cash Flows @ 0.50% per month and 0.35% per month|
|Month||Amount||Cumulative Discounting Factor @0.50%||Cumulative Discounted Values @0.50%||Cumulative Discounting Factor @0.35%||Cumulative Discounted Values @0.35%|
|1 to 60||532||51.726||27518.00||54.034||28746.01|
|Rate Of Interest = 0.35% + 0.15%*218.012/1228.01|
|Rate of Interest per month = 0.376629%|
|Rate Of Interest Per annum = 4.519% Will be Indiference rate of Interest|
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