In the early 2000s, GM sold the Chevrolet Cavalier for a cash price of $15,500.
ID: 2819573 • Letter: I
Question
In the early 2000s, GM sold the Chevrolet Cavalier for a cash price of $15,500. GM also offered 0% financing over a 48-month term, that is, a loan where you buy the car with 48 end-of-month payments. With 0% financing, the payments do not include any interestlong dash—they are just equal to the price divided by the number of payments. The catch with 0% financing was that the price used to calculate the payments was higher than the cash price of the car. For the sake of this example, let's say that it was $18,500.
Given this higher price, what is the actual APR of the loan? Express your answer in percentage form and round to two decimal places (e.g., 0.1234 is 12.34%).
What is the annual interest rate on the loan?
Explanation / Answer
Interest Paid = ($18500 - $15500) $3,000.00 Total Interest paid in % = $3000/$15,500 19.35% Period = 48 months/12 4 APR = 19.35 %/4 years 4.84%