4. Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. T
1 answer:
Answer:
present value = $6,246.34
Explanation:
given data
loan payment 1st year = $200 per month
loan payment 2nd year = $400 per month
annual interest rate = 12%
solution
we get here present value of 2 year loan that is express as
present value of 1st and 2
present value = present value of 1st + present value of 2nd year
we get here
present value = { $200 × -
+ $400 ×
-
} ÷ 1.0112
present value = $6,246.34
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Answer:
- <u><em>Option B. $1,025 a month for 10 years.</em></u>
Explanation:
Calculate the present value of each option:
Formula:
Where:
- PV is the present value of the constant monthly payments
- r is the monthly rate
- t is the number of moths
<u>1. Option A will provide $1,500 a month for 6 years. </u>
<u>2. Option B will pay $1,025 a month for 10 years. </u>
<u>3. Option C offers $85,000 as a lump sum payment today. </u>
<u></u>
- PV = $85,000
The present value of the<em> option B, $1,025 a month for 10 years</em>, has a the greatest present value, thus since he is only concerned with the <em>financial aspects of the offier</em>, this is the one he should select.