Question

Suppose you take out a car loan that requires you to pay $9,000 now, $3,000 at the end of year 1, and 56,000 at the end of year 2. The interest rate is 1% now and increases to 7% in the next year. What is the present value of the payments? Enter your response below rounded to 2 decimal places Number

Answer 1

Solution 1
	Down Payment	Year -1	Year -2	Total
Payment	$                          9,000	$                          3,000	$                          6,000
Interest rate		1%	7%
PV	$                          9,000	3000/(1+1%)	(6000/(1+7%))/(1+1%)
PV	$                    9,000.00	$                    2,970.30	$                     5,551.96	$ 17,522.25
Solution 2
	Year-3	Year -6	Year -7	Total
Payment	$                          2,000	$                          7,000	$                          8,000
Interest rate	11%	11%	11%
FV at year	11	11	11
FV	2000*(1+11%)^(11-3)	7000*(1+11%)^(11-6)	8000*(1+11%)^(11-7)
FV	$                    4,609.08	$                  11,795.41	$                  12,144.56	$ 28,549.05