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My Discount Rate

In: Business and Management

Submitted By msafiri
Words 328
Pages 2
My Personal Discount rate is... Discount rate refers to the interest rate that you are willing to pay on a given amount of money today to end up with a given amount of money in the future. Recently I requested an auto loan to buy a new or used car. I was very much interested with a Honda accord. I have $2000 in my saving account to be used as a down payment. During my window shopping I found it very difficult to find a car that I’m willing to pay for it. The main reason not to come into clear decision was which one of these cars will save me some money and spares my driving for longer time. Since I know how discount rate works, I have been able to make decisions easily than I expected. New 2015 Honda accord costs $24000 with zero mileage on it. The interest rate for this car over a period of five years is 1.49%. I f I put down payment of $2000, and then finance $22000. Therefore the total loan owed after five years will be approximated to $27000. On the other hand I have a used 2008 Honda accord for $11750 under interest rate of 17% for five years. After $2000 down payment, the total amount owed after five years is approximately to $23400. Based on the simple financial analysis above I found that the discount rate on a new car is much lower than that of the used car. This lead me to a better decision of choosing a new Honda accord over used one. New Honda accord has lower uncertainty compared to a used one. Over that period of time new Honda is more likely to survive driving more than a used one. Uncertainty can be mechanical problems or maintenance issues that incur more operating costs of the car. Therefore, my discount rate is 1.49% for a new car over a used one.…...

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