Question

Determine the equivalent cash price of an item that can be purchased for $150 down, and $215 paid at the end of each year for 3 years if money is worth 5.34% simple interest.

Answer 1

Ans. =

Down Payment = $150

PMT (Amount of each Payment) = $215

Interest Rate (r) = 5.34% (Simple Interest)

N (Total number of Periods) = 3 Years

Present Value:

= Down Payment + (PMT × r × N)
= 150 + (215 × 0.0534 × 3)
= 150 + 34.443
= $184.443

So, Effective Cash Price is Equal to $184.443

On Down Payment we don't need to calculate Interest as its already available at the Present Value itself (at Year 0).

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