Question

A car dealership offers you no money down on a new car. You may pay for the car for 5 years by equal monthly end-of-the-month payments of $621 each, with the first payment to be made one month from today. If the discount annual rate is 3.82 percent compounded monthly, what is the present value of the car payments?

Answer 1

- Periodic Monthly payment at the end of each month for 5 years is $621

Calculating the Present value of these Annuity payments:-

Where, C= Periodic Payments = $621

r = Periodic Interest rate = 3.82%/12 = 0.318333%

n= no of periods = 5 years*12 = 60

Present Value = $33,868.90

So, the present value of the car payments is $33,868.90

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