You are purchasing a used car and will make 5 annual payments of $3,500 starting

Question

You are purchasing a used car and will make 5 annual payments of $3,500 starting one year from today. If your funds could be invested at 9%, what is the present value of the car? (Round the final answer to the nearest dollar.)

A. $20,946

B. $17,500

C. $14,839

D. $13,614

Please explain to me how did you get the answer and how do you plug these question in the HP 10 bII (Financial calculator) because my professor expect us to know how to plug these numbers or question in the financial calculator. Thanks!

Explanation / Answer

Annual Payment = $3,500
Number of Payments = 5
Annual Interest Rate = 9%

Present Value = $3,500 * PVIFA(9%, 5)
Present Value = $3,500 * (1 - (1/1.09)^5) / 0.09
Present Value = $3,500 * 3.88965
Present Value = $13,614

Using HP 10bII calculator:
N = 5
I/Y = 9
PMT = -3500
FV = 0

Now press PV to solve for the present value, you will get 13,614

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