5. Suppose the bank offers Hassan a 48-month loan with the interest compounded monthly and...
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5. Suppose the bank offers Hassan a 48-month loan with the interest compounded monthly and the payments due at the end of each month. If Hassan accepts the bank loan, he can get $1800 cash back on this vehicle. Help Hassan work out a method to calculate the bank rate of interest required to make bank financing the same cost as dealer financing. First, calculate the monthly rate of interest that would make the monthly bank payments equal to the monthly dealer payments. Then calculate the effective rate of interest represented by the monthly compounded rate. If the financing from the bank is at a lower rate of interest compounded monthly, choose the bank financing. The reason is that the monthly payments for the bank's financing would be lower than the monthly payments for the dealer's 3.9% financing
a. How much money would Hassan have to borrow from the bank to pay cash for this vehicle?
b. Using the method above, calculate the effective annual rate of interest and the nominal annual rate of interest required to make the monthly payments for bank financing exactly the same as for dealer financin
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