You go to buy a new car because you receive an ad that says the model year is en

Question

You go to buy a new car because you receive an ad that says the model year is ending and Ford is willing to finance cars at 1% per year to get cars off their lot. You are interested in a car that has a sticker price of $18,000. The dealer tells you, we can take care of tax, title, and other closing fees and you do not have to pay anything today. The cost of tax, title, and other closing fee is $2,500. We will give you a loan you should pay $500 per month for the next 4 years. What is the effective annual interest rate? (could you please show this using excel aslo)?

Explanation / Answer

Total price=18000+2500=20500

=RATE(12*4,-500,20500)

=0.663% is the per period interest rate

So, 0.663*12=7.9517% is the effective annual interest rate

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