11. 15.00 points value: You can buy a car that is advertised for $19,800 on the

Question

11. 15.00 points value: You can buy a car that is advertised for $19,800 on the following terms: (a) pay $19,800 and receive a $2,800 rebate from the manufacturer; (b) pay $550 a month for 3 years for total payments of $19,800, implying zero percent financing. a. Calculate the present value of the payments for option (a), if the interest rate is .75% per month. Present value b. Calculate the present value of the payments for option (b), if the interest rate is .75% per month. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value c. Which is the better deal? 0 Option b OOption a References eBook&Resources;

Explanation / Answer

a)

Present value = $19800 - $2800

= $17000

b)

Present value = $550 * PVAF (0.75%, 36)

= 17295.74

c)

Option a (Pay and recieve rebate) is better deal as the present value is less then option b.

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