You are looking for a new truck and see the following advertisement."Own a new truck! No money down.Just five easy annual payments of $8000." You know that you can get the same truck from the dealer across town for only $31,120.The interest rate for the deal advertised is closest to:
A)9%.
B)8%.
C)8.5%.
D)10%.

Question

Quizplus · Accepted Answer

The present value of the payments ($8,000 per year for 5 years) should equal the dealer's price of $31,120. Using the formula for the present value of an annuity, the interest rate that equates these values is closest to 9%.

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