Question

You have decided to buy a used car. The dealer has offered you two options: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) a. Pay $610 per month for 30 months and an additional $12,000 at the end of 30 months. The dealer is charging an annual interest rate of 24%. b. Make a one-time payment of $18,937, due when you purchase the car. 1-a. Determine how much cash the dealer would charge in option (a). (Round your answer to 2 decimal places.) 1-b. In present value terms, which offer is clearly a better deal? 1-a. Present value 1-b. Which offer is clearly a better deal? Option b

Answer 1

Interest rate	2%	=24%/12
PV factor of $ 1 annuity	22.39646	=(1-(1.02)^-30)/0.02
PV factor of $ 1	0.55207	=1/1.02^30
1a
Present value of annuity payments	13661.84	=610*22.39646
Present value of additional payment	6624.84	=12000*0.55207
Present value	20286.68
1b
Option b is a better deal, as it's present value is less.