In: Finance
Suppose you take out a car loan that requires you to pay $7,000 now, $5,000 at the end of year 1, and $6,000 at the end of year 2. The interest rate is 4% now and increases to 9% in the next year. What is the present value of the payments?
Present value = Future value/(1+i)^n
i = interest rate per period
n= number of periods
=>
loan amount
= 7000 + 5000/1.09 + 6000/1.09^2
= 16637.24