Texts: (EAR in loans) You're considering buying a new top-of-the-line luxury car. The car's list price is $99,000. The dealer has offered you two alternatives for purchasing the car:
1. You can buy the car for $90,000 in cash and get a $9,000 discount in the bargain.
2. You can buy the car for the list price of $99,000. In this case, the dealer is willing to take $39,000 as an initial payment. The remainder of $60,000 is a "zero-interest loan" to be paid back in equal installments over 36 months.
Alternatively, your local bank is willing to give you a car loan at an annual interest rate of 10%, compounded monthly (that is, 10%/12 per month).
Decide how to finance the car: Bank loan or zero-interest loan with the dealer, or cash payment. FIND: Cost of car, Cash discount, Cash cost after discount, Credit cost, Bank loan monthly payment, EAR, bank, IRR, monthly of cash minus zero %, EAR, dealer, PV of alternative.