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    Whether to pay cash or take a loan for new car

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    Dear Mr. Diamond

    I read with great interest your article in Los Angeles Times on paying cash for a new car. Indeed I always thought that if my bank account pays lower than the loan, then I should use my money in the bank account for making the down payment. Since the figures quoted by you indeed proved the other way, I though I should cross check what Prof. Keppel and found out. To my surprise, I found the calculation absolutely correct. This gave a me a thought. I have a friend who thinks he is very great in Finance. Why not get one over him by giving him this example.

    Losing no time, I went over to him and ...

    Solution Summary

    The solution provides an answer to a case study involving the decision to buy a new car. The question answered is - is it better to take a loan and invest our funds or buy it with cash