I NEED URGENT HELP

• Dec 11th 2008, 01:35 AM
sunshineluvbabi
I NEED URGENT HELP
If you have sufficient financial resources to pay cash for a car without borrowing...
You have investments that you could sell and use the proceeds to purchace a vehicle.
You may still chose to borrow at the below marker rate of 4.5% because your investments are generating a high rate of return.
What should be your rule for deciding whether to liquidate investments or to use the dealer's financing to perchage a vehicle?

By the way...
The interest rate is compounded monthly.
And the load period is 36 months
The price of the vehicle is \$44890.00
• Dec 11th 2008, 02:22 AM
CaptainBlack
Quote:

Originally Posted by sunshineluvbabi
If you have sufficient financial resources to pay cash for a car without borrowing...
You have investments that you could sell and use the proceeds to purchace a vehicle.
You may still chose to borrow at the below marker rate of 4.5% because your investments are generating a high rate of return.
What should be your rule for deciding whether to liquidate investments or to use the dealer's financing to perchage a vehicle?

By the way...
The interest rate is compounded monthly.
And the load period is 36 months
The price of the vehicle is \$44890.00

Use two scenarios; first you borrow the money, second you liquidate investments and pay cash.

For the second scenario, assume you reinvest what you would have payed as repayments in scenario 1 (at the best available rate).

After 36 months if you have more money in under scenario 1 then you should take out the loan, otherwise pay cash.

What you are doing is setting up a pair of scenarios with the same cash flows which can then be compared on a like for like basis.

CB
• Dec 11th 2008, 02:29 AM
sunshineluvbabi
Ok, so in that case, what would you say is the best way to go? How should I answer this question.
I'm pretty sure my answer is completely wrong...
I said:

40000 - 1750 = 38250 (rebate amount)
Then I used the 4.5% interest rate

PV= 38250
N= 36
p/y = 12 c/y = 12
FV= 0
CPT PMT= 1137.82

I'm pretty sure that's completely irrelevant, but I am so stuck I couldn't answer this question