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Lina Martinez wants to buy a new high-end audio system for her car. The system is...

Lina Martinez wants to buy a new high-end audio system for her car. The system is being sold by two dealers in town, both of whom sell the equipment for the same price of $2,000. Lina can buy the equipment from Dealer A, with no money down, by making payments of $120.11 a month for 18 months; she can buy the same equipment from Dealer B by making 36 monthly payments of $70.31 (again, with no money down). Lina is considering purchasing the system from Dealer B because of the lower payment.

Find the APR for Dealer A. Use the financial calculator or Exhibit 7.6 to find the answer. Round the answer to 2 decimal places.
%

Find the APR for Dealer B. Round the answer to 2 decimal places.
%

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Answer #1

Dealer A:

N=18

PMT=-120.11

PV=2000

FV=0

CPT I/Y=0.833%

Dealer B:

N=36

PMT=-70.31

PV=2000

FV=0

CPT I/Y=1.33%

Dealer A=0.833%*12=10.00%

Dealer B=1.33%*12=16.00%

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