Suppose You Have $1100 and Decided to Purchase a New

question 6

Essay

Suppose you have $1100 and decided to purchase a new model of television that costs you $1100. You find an electronics store where a gift voucher, worth $50, is offered with this TV model if payment is made in full during the time of purchase, or it can be financed at 0 percent interest for 5 months with a monthly payment of $220. You now have two options: either invest your amount for an annual interest rate of 10% and opt for 0 percent financing option for the TV purchase; or choose full payment option. Develop a spreadsheet model to find the better option that results in a good saving? Also, find the discount rate for 0 percent financing option.
Hint: Use Goal Seek to find the discount rate that makes the net present value of the payments = $1050.

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Definitions:

Risk Averse

A risk-averse individual prefers certainty over uncertainty and would opt for a guaranteed outcome over a gamble with potentially higher, yet uncertain, rewards.

Expected Rate

Often refers to the anticipated rate of return on an investment or the expected growth rate of an economic variable.

Risk-Averse Investor

An individual who prefers lower returns with known risks rather than higher returns with unknown risks.

Variances

Variances measure the dispersion of a set of data points around their mean value, identifying how spread out the data points are.