Question

4. Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present value of this 2-year loan?

Answer 1

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 × $\frac{1}{0.01}$ - $\frac{1}{0.01(1.01)12}$ + $400 × $\frac{1}{0.01}$ - $\frac{1}{0.01(1.01)12}$ } ÷ 1.0112

present value = $6,246.34