You have decided to buy a used car. The dealer has offered you two options: (FV

Question

You have decided to buy a used car. The dealer has offered you two options: (FV of $1, PV of $1, FVA of $1, and PVA of S1) (Use the appropriate factor(s) from the tables provided.) terest rate of 4%. a. Pay S640 per month for 30 months and an additional $10,000 at the end of 30 months. The dealer is charging an annual, b. Make a one-time payment of $19,855, due when you purchase the car 1-a. Determine how much cash the dealer would charge in option (a). (Round your final answer to nearest whole dollar.) Present value

Explanation / Answer

Present value of option (a) Payment per month = $640 Number of months = 30 Monthly interest rate = 24%/12 = 2% PVIFA @ 2% 30 periods = 22.3965 PV of monthly payments = $640*22.3965 = $14334 Additional payment at the end of 30th payment = $10000 PVIF @ 2% 30 periods = 0.5521 PV of additional payment = $10000*0.5521 = $5521 Present value of option (a) = $14334+$5521 = $19855 Amount of one time payment = $19855 Amount charged by dealer = $19855-19855 = $0

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