Asked by Makayla Caplinger on May 07, 2024
Verified
An advertisement for Ford trucks offered "2.9% financing (for 48 months) or $2,000 cash back." A truck buyer financed $20,000 at the low interest rate instead of paying $18,000 cash (after the $2,000 rebate). What was the effective rate of interest on the loan if the foregone cash rebate is treated as part of the cost of financing? (The 2.9% interest rate is a monthly compounded nominal annual rate.)
Compounded Nominal Annual Rate
The rate of interest for one year, without taking inflation into account, which is compounded at specified intervals within that year.
Effective Rate
The actual interest rate on an investment or loan, taking into account the compounding of interest over time.
- Analyze the economic considerations in the allocation of resources to finance and promotional activities.
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CP
Learning Objectives
- Analyze the economic considerations in the allocation of resources to finance and promotional activities.