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(Solved): You Consider Buying An Electric Car. The Invoice Price Of The Car Is $55,000. The Dealer Says If You ...

You consider buying an electric car. The invoice price of the car is $55,000. The dealer says if you can pay 100% cash today, you can get $5,000 immediate discount. Alternatively, the dealer can offer you a interest free installment plan, which requires five yearly payments. Since in this case you won't get the discount, the annual payment will be $11,000, with the first payment due immediately. Which of the following statements are correct? I. You should take installment plan. Borrowing for free, why not? II. As long as you can afford to pay $50,000 in cash, you should pay the cash so you can get the discount. III. The installment plan is not really interest-free. Compared to the cash price, the extra $5,000 under he installment plan is the interest amount. IV. Suppose you currently have enough money in a fund earning 4% annually. It's financially better that you take out $50,000 to pay for the car, rather than taking the installment plan. V. Suppose your bank offers you a consumer loan charging 4% annually. It is financially better you borrow $50,000 from the bank to pay cash for the car rather than taking the installment plan. Select one: a. I, II, IV
b. I, III, IV
c. I, II, III, IV
d. III, IV, V
e. III, IV

Expert Answer

Formula used:- Effective Interest Rate=RATE(C34,-C35,C33) I.This statement is not correct the amount is not free we have to effectively pay Interest of 5.01% as shown in above calculation. II.
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