Suppose you want to buy a car for college. Your awesome uncle is willing to sell you his $20,000car which he no longer needs. He will only charge you 1% interest per year on the value of the car. Also, since he knows that you will be cash strapped for your 4 years in college, he will only require that you start paying him a year after you graduate. Draw timelines and show your work.
a) Assuming 10 equal annual payments, what is the payment amount?
b) What is the payment amount if you instead went to the bank to ?nance given the sameconditions except that the bank charges 6.09% interest?
c) What is the net present value of this car transaction? (Hint: use the bank interest rate to convert your uncle’s o?er)