Question

3. You have a car loan that requires monthly payments of $300 for the first year and $500 per month during the second year. The annual rate on the loan is 12% and payments begin in one month. What is the present value?

Answer 1

- Monthly Payment in the first year = $300

Calculating the Present Value of the first year of Monthly payment:-

Where, C= Periodic Payments = $300

r = Periodic Interest rate = 12%/12 = 1%

n= no of periods = 12

Present Value of the first year of Monthly payment = $3376.52

- Monthly Payment in the Second year = $500

Calculating the Present Value today of the Second year of Monthly payment:-

Where, C= Periodic Payments = $500

r = Periodic Interest rate = 12%/12 = 1%

n= no of periods = 12

Present Value of the Second year of Monthly payment = $4,994.15

Total Present value today = $3376.52 + $4994.15

= $8370.67

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