The buyer and seller have tentatively agreed that the buyer will pay the seller $100,000 (principal and interest) each year for 5 years.The seller's cost of the asset is $200,000, and he will report the capital gain using the installment method.The buyer and seller are now negotiating the interest rate that will be used to compute the interest included in each $100,000 payment.The relevant Federal rate is 5%, but the market rate on similar contracts in the area is 7%.Why would the seller bargain for a 5% interest rate for the contract rather than a 7% interest rate?
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