A car dealership offers you no money down on a new car. You may pay for...

A car dealership offers you no money down on a new car. You may pay for the car for 5 years by equal monthly end-of-the-month payments of $407 each, with the first payment to be made one month from today. If the discount annual rate is 4.52 percent compounded monthly, what is the present value of the car payments? Round the answer to two decimal places.

Solutions

Expert Solution

Number of years	5
Number of payments	60
Monthly payment	$ 407
Discount annual rate	4.52%
Discount monthly rate	0.38%
Present value	$ 21,820.58

Excel formulas used:

We can also find the answer using present value of annuity formula:

Where,
PVA = Present value of annuity
A = Annuity or payment
i = Interest rate in decimal form
a = Number of payments in a year
n = Number of years

jeff jeffy answered 1 year ago

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