Provide Comments to the response to 4-5 Problem below: 4.5 (Problem 4-33) You ar

Question

Provide Comments to the response to 4-5 Problem below:

4.5 (Problem 4-33) You are shopping for a car and read thefollowing advertisement in the newspaper: Own a new Spitfire!No money down. Four annual payments of just $10,000." You haveshopped around and know that you can buy a Spitfire for cashfor $32,500. What is the interest rate the dealer is advertising(what is the IRR of the loan in the advertisement)? Assume that you must make the annual payments at the end of each year.

Response:

NPER = 4
PV = $32,500
PMT = -$10,000
FV = $0
Excel Formula = RATE(4,-10000,32500,0)
RATE = 8.86%

Explanation / Answer

4 years

?

Annual Payment Amount (PMT) $10,000 Number of years

4 years

if you go for cash payment Present Value of the Cash (PV) $32,500 Interest rate

?

PVoAF(----, 4) 3.25 Interest Rate 8.86%

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