Present value. A smooth-talking used-car salesman who smiles considerably is offering you a great deal on...

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Present value. A smooth-talking used-car salesman who smiles considerably is offering you a great deal on...

Present value. A smooth-talking used-car salesman who smiles considerably is offering you a great deal on a "pre-owned" car. He says, "For only 4 annual payments of $2800, this beautiful 1998 Honda Civic can be yours."

A) If you can borrow money at 7%, what is the price of this car? Assume the payment is made at the end of each year.

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Answer 1

Answer #1

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$2800[1-(1.07)^-4]/0.07

=$2800*3.387211256

which is equal to

=$9484.19(Approx).

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Answer 2

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