Question

You've just bought a new Harley-Davidson motorcycle for $ 16,000
and you have two possibilities to finance this purchase in 36 monthly installments of
period:
1) The nearest bank offers financing at a nominal annual rate of
6%, capitalized semi-annually, and asks you for $ 300 in administration fees,
hence a total funding of $ 16,300.
2) The dealer offers financing at an annual nominal rate of 8%,
capitalized semi-annually, which is higher than the bank's, but without
special fees (therefore $ 16,000 in funding).

a) What is the annual effective rate offered by the dealer?
b) What is the monthly payment requested by the dealer?
c) Which of the two modes of financing is the most advantageous? Explain.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE