Question

Kangaroo Autos is offering free credit on a new $10,000 car. You pay $1,000 down and then $300 a month for the next 30 months. Turtle Motors next door does not offer free credit but will give you $1,000 off the list price. a. If the rate of interest is 0.83% a month, calculate the present value of the payments to Kangaroo Autos.

Answer 1

Answer:

8,938.0168

Explanation:

Kangaroo Autos is offering free credit on a new $10,000 car. You pay $1,000 down and then $300 a month for the next 30 months. Turtle Motors next door does not offer free credit but will give you $1,000 off the list price. If the rate of interest is 0.83% a month, the present value of the payments to Kangaroo Autos is 8,938.0168.

Answer 2

Answer:

8,938.0168 present value of the car in Kangaroo Autos.

Explanation:

We will calculate present value of annuity of $300 per month during 30 months at 0.83% discount rate:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C $  300

time       30 months

rate         0.0083 per month

$300 \times \frac{1-(1+0.0083)^{-30} }{0.0083} = PV$

PV $7,938.0168

We will add the 1,000 down payment

7,938.0168 + 1,000 = 8,938.0168 present value of the car in Kangaroo Autos.