Question

You are about to purchase a new car from a dealer who has a new and unusual payment plan. You have the choice to pay $29,000 cash today or $32,000 in 4 years. If you have the opportunity to borrow the cash price value of the car at a rate of 3.0% and repay the loan in a lump sum in 4 years, which option should you take and why? HTML Editor Keyboard Shortcuts

Answer 1

It would be bettter to make an agreement with the car dealer for the 32,000 in 4 years.

Step-by-step explanation:

We will y comparing the value of the loan in 4 years;¿ with the 32,000 in for years option:

`Principal \: (1+ r)^(time) = Amount`

Principal $ 29,000.00

time 4 years

rate 3% = 3/100 = 0.030

`29000 \: (1+ 0.03)^(4) = Amount`

Amount $ 32,639.76

Which is higher than the 32,000 option. Therefore, the loan option is more expensive than the financing through the car dealer.

It is a better option to make deal with the car seller.