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Finance Question - Don't know where to start.?
Q. Your neighbor is buying a new recreational vehicle (RV). If he buys the RV for cash, the price is $45,000. Alternatively, he could buy the RV for monthly payments of $750 at the end of each month for 72 months. At what discount rate, will the two options be equally attractive (using monthly compounding)?
Asked by Michael M - Wed Sep 10 10:24:06 2008 - - 1 Answers - 0 Comments

A. If he pays $750/mo for 72 mos then that is $54,000 with $9,000 of that being interest only. I think you would have to work backwards to figure out the interest rate he's being charged. Then you could play with some discount figures to see how much of a discount should be given off the purchase price so that he pays a total of $45,000 including interest at the end of 72 mos. I'm sure there's got to be an algebraic formula out there that would work.
Answered by julieandjacob - Wed Sep 10 14:24:58 2008