Answer:
48 MONTHS
PV = Down payment + $450(1 - (1 + r/m)-mn - 1)
r/m
PV = $5,000 + $450(1 - (<u>1 + 0.12/12</u>)-12x4 - 1)
0.12/12
PV = $5,000 + $450(1 -<u>(1 + 0.01)</u>-48 - 1)
0.01
PV = $5,000 + $450(37.9740)
PV = $5,000 + $17,088
PV = $22,088
60 MONTHS
PV = $5,000 + $450(1 - <u>(1 + 0.12/12)</u>-12x5 - 1)
0.12/12
PV = $5,000 + $450(1 -<u>(1 + 0.01)</u>-60 - 1)
0.01
PV = $5,000 + $450(44.9550)
PV = $5,000 + $20,230
PV = $22,230
Explanation:
In this case, we need to calculate the present value of the car which is a function of down payment plus the present value of the monthly payments at 12% discount rate.