Asked by Bayle Glassmaker on May 11, 2024
Verified
An advertisement for new vehicles offered "1.9% 12-month financing or $2,000 cash back." A truck buyer financed $17,000 at the low interest rate instead of paying $15,000 cash (after the $2,000 rebate). What was the effective rate of interest on the loan if the foregone cash rebate was treated as part of the cost of financing? (The 1.9% interest rate was a monthly compounded nominal annual rate.)
Compounded Nominal Annual Rate
The rate of interest per year without taking into account the compounding within that year, often differing from the effective annual rate.
Effective Rate
The actual interest rate an individual earns or pays on an investment or loan, taking into account the effect of compounding.
- Assess the financial compromises involved in funding and advertising promotions.
Verified Answer
NO
Learning Objectives
- Assess the financial compromises involved in funding and advertising promotions.