You have a strict budget for a used car. You have decided that you will spend no
ID: 2736281 • Letter: Y
Question
You have a strict budget for a used car. You have decided that you will spend no more than $10,000 on a car. You have contacted the bank and they will give you a loan for any used car you buy for 3 years at an interest rate of 2.99%. The used-car salesman you are dealing with just talked with his manager, and he has got the best deal he can for the car you are interested in. It calls for payments of $305.22 for 36 months. If you use your interest rate of 2.99% per year, what is the present value of the payments – that is, what is the price of the car you would be paying?
Explanation / Answer
The interest arte per month would be
0.029/12 = 0.00249
The present value would be:
305.22(1-1.00249-36)/ 0.00249
=$10499.083
The price of car at present datewoudl be $10499.083
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