Ziggy is considering purchasing a new car. The cash purchase price for the car is $39,200. What is the annual interest rate if Ziggy is required to make annual payments of $9,100 at the end of the next five years?

Question

Quizplus · Accepted Answer

The problem can be solved using the formula for the present value of an annuity: $PV = PMT \times \left[\frac{1 - (1 + r)^{-n}}{r}\right]$, where PV is the present value (cash purchase price), PMT is the annual payment, r is the annual interest rate, and n is the number of periods (years). Plugging in the given values and solving for r gives an interest rate of approximately 5%.

Ziggy Is Considering Purchasing a New Car