You are considering buying a new car worth $15,000. You can finance the car by either withdrawing cash from
you savings account, which earns 8% interest or by borrowing $15,000 from your dealer for four years at 11%.
You could earn $5,635 in interest from your savings account for four years if you left the money in the account.
If you borrow $15,000 from your dealer, you only pay $3,609 in interest over four years, so it makes sense to
borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the above
statement? Justify your reasoning with a numerical calculation. All transactions are monthly.

Question

Quizplus · Accepted Answer

The Answer of You are considering buying a new car worth $15,000. You can finance the car by either withdrawing cash from
you savings account, which earns 8% interest or by borrowing $15,000 from your dealer for four years at 11%.
You could earn $5,635 in interest from your savings account for four years if you left the money in the account.
If you borrow $15,000 from your dealer, you only pay $3,609 in interest over four years, so it makes sense to
borrow for your new car and keep your cash in your savings account. Do you agree or disagree with the above
statement? Justify your reasoning with a numerical calculation. All transactions are monthly.

You Are Considering Buying a New Car Worth $15,000