Question

Janet buys a $20,000 car. Prevailing market rates are nominal 8% annual, convertible monthly. The dealership offers her the choice of a rebate upon purchase of the car for cash, or alternatively, Janet can make no down payment and 60 monthly payments based on a nominal 2.5% annual interest, convertible monthly. The first payment would be due one month after the purchase of the car. The amount of the rebate is set so that the dealership is indifferent as to whether Janet takes the rebate or finances the car at the offered below market interest rate. Determine the amount of the rebate

Answer 1

=20000-20000*(2.5%/12)/(1-1/(1+2.5%/12)^60)/(8%/12)*(1-1/(1+8%/12)^60)
=2494.558596