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Math Help - I NEED URGENT HELP

  1. #1
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    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?


    HOW DO I SOLVE THIS?? Please help asap

    By the way...
    The interest rate is compounded monthly.
    And the load period is 36 months
    The price of the vehicle is $44890.00
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  2. #2
    Grand Panjandrum
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    Quote Originally Posted by sunshineluvbabi View Post
    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?


    HOW DO I SOLVE THIS?? Please help asap

    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
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  3. #3
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    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
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