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What interest rate is the dealer advertising

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Reference no: EM13850172

You are shopping for a car and read the following advertisement in the news- paper: Own a new Tesla! No money down. Five annual payments of just $20,000.You have shopped around and know that you can buy a Tesla for cash for $85,000. Assume that you must make the annual payments at the end of each year. (a) Draw the timeline for the advertised offer. (b) What interest rate is the dealer advertising (i.e. what is the IRR of the loan in the advertisement)? Assume that the interest rate is between 0% and 20%. Start with an initial guess of 10% and report your next 4 guesses using the bisection method. (c) What is the present value of a $20,000 per year, 5 year annuity using the interest rate found in Part (b)?

Reference no: EM13850172

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