A businessman wants to buy a truck.The dealer offers to sell the truck for either $120,000 now,or six yearly payments of $25,000.Which of the following is closest to the interest rate being offered by the dealer?

Question

Quizplus · Accepted Answer

Option 1: Buying the truck for $120,000 now

Option 2: Paying six yearly installments of $25,000

Total amount paid in option 2 = $25,000 x 6 = $150,000

Extra amount paid in option 2 = $150,000 - $120,000 = $30,000

This extra amount is the interest charged by the dealer.

Interest rate = (Extra amount paid/Total amount paid) x 100

Interest rate = (30,000/150,000) x 100 = 20%

Therefore, the interest rate being offered by the dealer is 20%, which is closest to option B (7%).

A Businessman Wants to Buy a Truck