Question

24. Dustin is considering an investment that will pay $3,000 a year for 10 years, starting
1 year from today. How much should Dustin pay for this investment if he wishes to earn a 9 percent rate of return?

a. $17,985.74
b. $18,349.81
c. $19,252.97
d. $20,415.57

e. $21,213.24

25. Steven can afford car payments of $250 a month for 60 months. The bank will lend him this money at 6.2 percent interest. How much can Steven borrow?
a. $12,568.63
b. $12,869.39
c. $13,672.38
d. $14,104.91
e. $14,770.27

Please show me the steps on a financial calculator.

Answer 1

24). Dustin is considering an investment that will pay $3000 a year for 10 years, starting 1 year from today.

So, annual payment PMT = $3000

time period = 10

interest rate r = 9%

So, for present value of investment, use following values on financial calculator:

FV = 0

PMT = 3000

N = 10

I/Y = 9

compute for PV, we get PV = -19252.97

So, Dustin will pay $19252.97 for this investment

Option C is correct.

25). Steven can afford car payments of $250 a month for 60 months. The bank will lend him this money at 6.2 percent interest

So, use following value to find present value of this annuity, which is equal to the loan amount:

PMT = 250

N = 60

FV = 0

I/Y = 6.2/12 = -12869.39

So, Steven can borrow $12869.39

Option B is correct.