Question

Derek decides to buy a new car. The dealership offers him a choice of paying $585.00 per month for 5 years (with the first payment due next month) or paying some amount today. He can borrow money from his bank to buy the car. The bank requires a 5.00% interest rate. What is the most that he would be willing to pay today rather than making the payments? SHOW FINANCIAL CALCULATIONS AND EQUATIONS, ROUND 2 DECIMALS

Answer #1

Amount to be paid today will be present value of future payment. | ||||||||||||||||

Present Value of future payments |
= | Periodical payments*Present value of annuity of 1 | ||||||||||||||

= | $ 585.00 | * | 52.99019 | |||||||||||||

= |
$ 30,999.26 |
|||||||||||||||

Working: | ||||||||||||||||

Present value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | |||||||||||||

= | (1-(1+0.004167)^-60)/0.004167 | i | = | 5%/12 | = | 0.004167 | ||||||||||

= | 52.9901917 | n | = | 5*12 | = | 60 | ||||||||||

Derek decides to buy a new car. The dealership offers him a
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Answer Format: Currency: Round to: 2 decimal places.

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Answer format: Percentage Round to: 3
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Answer format: Currency: Round to: 2 decimal places.

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Answer Format: Currency: Round to: 2 decimal
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