Question

1. You have lost a civil lawsuit and the judge has awarded damages to the litigator and you are ordered to pay $20,000 to the bailiff immediately. You plead with the judge that you can’t raise that sort of scratch immediately – she asks you how much you CAN pay now. You say, $5,000. She orders you to pay $5,000 now followed by four additional checks each for $5,000, each month beginning a month from now. At a periodic interest rate of .5% per month (APR of 6.0%), is this a better deal than the $20,000 immediately?

2. You are looking to purchase a new truck for your business. The salesman offers either cash todayof $85K (which you have but would rather not spend) OR 60 monthly payments of $1,700 with the first payment due immediately. If you can borrow money from your bank for 5 years with and APR of 6.0% and monthly compounding. Which is the better offer?

Answer 1

1.
Using financial calculator
Set the mode to BGN
PMT=-5000
I/Y=0.5%
N=5
FV=0
CPT PV=24752.48

No this is not a better deal

2.
Using financial calculator
Set the mode to BGN
N=60
PMT=-1700
I/Y=6%/12
FV=0
CPT PV=88373.12

Cash is better offer