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Question 18 Recently, Julia Estes was interested in purchasing a Honda Acura. The salesperson indicated that...

Question 18

Recently, Julia Estes was interested in purchasing a Honda Acura. The salesperson indicated that the price of the car was either $25,000 cash or $6,300 at the end of each of 5 years. Compute the effective-interest rate to the nearest percent that Julia would pay if she chooses to make the five annual payments. (Round answer to 0 decimal places, e.g. 7%.)

Interest rate %??

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Answer #1

Let interest rate be x%

At this interest rate;present value of annuity=$25000

25000=6300/1.0x+6300/1.0x^2+....................+6300/1.0x^5

Hence x=interest rate=8.234%

=8%(Approx).

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