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Sidana [21]
3 years ago
13

Derek decides to buy a new car. The dealership offers him a choice of paying $600.00 per month for 5 years (with the first payme

nt due next month) or paying some amount today. He can borrow money from his bank to buy the car. The bank requires a 5.00% interest rate. What is the most that he would be willing to pay today rather than making the payments
Business
1 answer:
frosja888 [35]3 years ago
3 0

Answer:

PV= $31,794.12

Explanation:

Giving the following information:

Monthly payment= $600

Number of months= 5*12= 60 months

Interest rate= 0.05/12= 0.004167

<u>To calculate the present value of the monthly payments, we need to use the following formula:</u>

PV= A*{(1/i) - 1/[i*(1 + i)^n]}

A= monthly payments

PV= 600*{(1/0.004167) - 1/ [0.004167*(1.004167^60)]}

PV= $31,794.12

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