You are considering buying a new car worth $I5,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly, or by borrowing $I5,000 from your dealer for four years at 11% interest compounded monthly. You could earn $5,635 in interest from your savings account in four years if you leave the money in the account. If you borrow $15,000 from your dealer, you pay only $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 foregoing statement? Justify your reasoning with a numerical calculation.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter4: Managing Your Cash And Savings
Section: Chapter Questions
Problem 7FPE: Calculating interest earned and future value of savings account. If you put 6,000 in a savings...
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You are considering buying a new car worth $I5,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly, or by borrowing $I5,000 from your dealer for four years at 11% interest compounded monthly. You could earn $5,635 in interest from your savings account in four years if you leave the money in the account. If you borrow $15,000 from your dealer, you pay only $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 foregoing statement? Justify your reasoning with a numerical calculation.

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