Homework Answers
Cash purchase price of car = $64,945
Annual payments = $15,500
Time period (n) = 5 years
Annual interest rate (i) = ?
Cash purchase price of car = Annual payments x Present value annuity factor (i%, n)
64,945 = 15,500 x Present value annuity factor (i%, 5)
Present value annuity factor (i%, 5) = 64,945/15,500
= 4.19
4.19 can be located in the Present value annuity factor table in 5 year row. In the 5th year row, factor 4.21 (nearest to 4.19) lies in front of 6% interest.
Hence, interest rate is 6% .
Second option is the correct option.
Please ask if you have any query related to the question. Thank you
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