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Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $200,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4,000 (paid at the end of each month). Your firm can borrow at 6% APR with quarterly compounding.
-The effective annual rate on your firm's borrowings is closest to:
A) 6.00%
B) 6.24%
C) 6.17%
D) 6.14%

Question

Quizplus · Accepted Answer

D) EAR = (1 + APR / k)^k - 1 = (1 + .06 / 4)⁴ - 1 = .06136 or 6.14%

Use the Information for the Question(s) Below