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Derek decides to buy a new car. The dealership offers him a choice of paying $594.00...

Derek decides to buy a new car. The dealership offers him a choice of paying $594.00 per month for 5 years (with the first payment 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?

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Answer #1

Some amount payable today is the present value of monthly payments,

Using Excel:

=PV(rate,periods,pmt)

=PV(5%/12,5*12,-594)

=31,476.48

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