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Lowest Cost among given Loan Proposals

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Ms. Day needs $20,000 to buy her dream car. In her search for the best (low cost) loan, she has gathered the following information from three local banks.

Which bank would you recommend Ms. Day borrow from?

Bank Annual Payment Term (years)
A $8,326.40 3
B 6,309.15 4
C 5,411.25 5

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Solution Summary

The solution describes the steps for finding the interest rates of loan for given proposals.

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Solution

Present Value factor for Case A = PV of loan/annual Payment
=20000/8326.40=2.402
Periods =Term = 3 years
Look for PV factor = 2.402 and period =3 in "Present value ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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