Matthew Wants to Take Out a Loan to Buy a Car

question 11

Multiple Choice

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $4 000 per year. If he can get a five-year loan with an interest rate of 7.5%, what is the maximum price he can pay for the car?

• A)$20 324
• B)$21 674
• C)$18 243
• D)$16 184

---

Definitions:

Convertible Bond

A type of bond that can be converted into a predetermined amount of the issuing company's equity at certain times during the bond's life, usually at the discretion of the bondholder.

Common Stock

Equity ownership in a corporation, with voting rights and potential for dividends, representing a claim on part of the company’s earnings and assets.

Conversion Ratio

The specified number of shares that can be exchanged for one unit of the convertible security.

Exercising Option

The act of implementing the right to buy or sell an underlying asset at a predetermined price before the option expires.