Question

You purchase a car worth $25077 and make a down payment of $3560. You intend to repay the balance of the car with month end car payments of $336 for 5 years and a final "buyout" at the end of 5 years. Money can earn 4,04% compounded semi-annually. What is the value of the final buyout? Answer:

Answer 1

Answer:

value of buyout is $4185.74

Step-by-step explanation:

given data

car worth = $25077

down payment = $3560

monthly payment = $336 = 336 × 6 = $2016 per semi annually

time = 5 year  = 10 half yearly

rate = 4.04 %

to find out

value of final buyout

solution

we know here loan amount will be 25077 - 3560 = $21517

and we find present value first by formula that is

present value = $\frac{amount(1+r)^t - 1}{r (1+r)^t}$

put here t = 10 and r = $\frac{4.04}{200}$

so

present value = $\frac{2016(1+\frac{4.04}{200})^10 - 1}{r (1+\frac{4.04}{200})^10}$

present value = 18089.96

so

loan unpaid amount is here

loan unpaid amount = 21517 - 18089.96

loan unpaid amount = $3427.04

so

now we calculate value of buyout

that is express as

amount = principal × $(1+r)^{t}$

amount = 3427.04 × $(1+\frac{4.04}{200})^{10}$

amount = 4185.74

so value of buyout is $4185.74