Question

A car dealership offers you no money down on a new car. You may pay for the car for 3 years by equal monthly end-of-the-month payments of $735 each, with the first payment to be made one month from today. If the discount annual rate is 17.45 percent compounded monthly, what is the present value of the car payments? Round the answer to two decimal places.

Answer 1

Answer -

Calculation of the Present Value of the Car Payments -

Formula -

p [1 - (1 + r)-n / r]

Here,

p = Monthly payments = $735

r = Adjusted discount rate = (17.45% / 12 months) = 0.01454166666

n = Number of monthly payments = (3 years * 12 months) = 36

Putting the values in the above formula we get -  

= $735 [1 - (1+0.01454166666)^-36 / 0.01454166666]

= $735 * 27.8729426555

= $20486.61.

Therefore, The Present Value of the Car Payments = $20486.61.​​​​​​​