You can pay $110 per month, starting next month, for the next 5 years to have a lawn mowing service.

You can pay $110 per month, starting next month, for the next 5 years to have a lawn mowing service. Alternatively, you can purchase a riding lawn mower and pay $587 today and mow your own lawn for 5 years, starting next month. If you decide to mow your own lawn, how much do you save in PV terms if your investments earn 4.92% APR, compounded monthly? Note: If you would lose money, make your answer with a negative sign (e.g., - 3458)

Expert Solution

Q-1)

You can pay $110 per month starting next month for 5 years to have a lawn mowing service.

Calculating the Present value today of per month payment using PV of ordinary annuity formual:-

Where, C= Periodic Payments = $110

r = Periodic Interest rate = 4.92%/12 = 0.41%

n= no of periods = 5 years*12 = 60

Present Value today of lawn mowing service is $5840.31

- While alternatively you can purchase a riding lawn mower for $587 today and mow your own lawn for 5 years.

Since, you decided to mow your own lawn and not paying monthly payment for mowing service, the Investment you save in PV terms will be:

Save in Investment in PV terms = $5840.31 - $587

= $5253.31

jeff jeffy answered 2 years ago

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