Question

An auto dealership is advertising that a new car with a sticker price of $34,848 is on sale for $25,995 if payment is made in full, or it can be financed at 0% interest for 72 months with a monthly payment of $484. Note that 72 payments × $484 per payment = $34,848, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995. If you choose the 0% financing option, what is the effective interest rate that the auto dealership is earning on your loan? (Hint: Discount the payments back to current dollars, and use Goal Seek to find the discount rate that makes the net present value of the payments = $25,995.)

Enter your answer as a percentage. If required, round your answer to one decimal digit.
%

Answer 1

Answer:

The effective interest rate is calculated using RATE function in Excel :

nper = 72 (there are 72 monthly payments)

pmt = -484 (Monthly payment. This is entered with a negative sign because it is a payment)

pv = 25995 (amount loaned)

RATE is calculated to be 0.85%. This is the monthly rate. To calculate yearly rate, we multiply by 12.

Effective annual interest rate earned by auto dealership = 10.2%

NOTE:: I HOPE YOUR HAPPY WITH MY ANSWER....***PLEASE SUPPORT ME WITH YOUR RATING...

***PLEASE GIVE ME "LIKE"...ITS VERY IMPORTANT FOR ME NOW....PLEASE SUPPORT ME ....THANK YOU