Question

# 4 Derek plans to buy a $25,187.00 car. The dealership offers zero percent financing for 60.00 months with the first payment due at signing (today). Derek would be willing to pay for the car in full today if the dealership offers him $ cash back. He can borrow money from his bank at an interest rate of 5.38%. Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted t

Answer 1

Basic data

Value of the car-$25187

Interest rate from bank-5.38%

Interest rate from bank for one month-5.38%/12 months=0.448%

No of months for which no interest is charged -60 months

To find

What will be the cashback if the entire amount is to be settled today?

Answer

Present Value factor of 0.448% for 60 months=0.7647

Present value of the car if the entire amount is settled today

$25187*.7647=19260.50

Cashback=Value of the car-Present value of the car if the entire amount is settled today Cashback=$25187-$19260.5 Cashback=$5926.5 Derek will get a cashback of $5926.5 if he plans to pay the car in full today