Which interest rate gives the lowest present worth

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Reference no: EM131332688

A recent graduate is planning to acquire a new automobile for commuting to work in Atlanta. One option is to purchase a $25, 000 4-door sedan by paying the dealer $5, 000 at the time of purchase and financing the remaining $22, 000 to be repaid in 60 equal monthly payments at 9% compounded monthly. It is expected that the car is to be sold for 30% of its initial cost after 6 years. Draw the cash flow and compute the present worth of this cash flow if the interest rate for the purchase is 6% compounded monthly or 12% compounded monthly. Which interest rate gives the lowest present worth? Explain why this occurs?

Reference no: EM131332688

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