a car dealership offers you no money down on a new car you m

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 758 each, with the first payment to be made one month from today. if the discount annual rate is 4.85 percent compounded monthly, what is the present value of the car payments?

Solution

Present value = Annuity * [ 1 - 1 / ( 1 + R)ⁿ] / R

Number of periods = 5 * 12 = 60

Discount rate = 0.0485 / 12 = 0.004042

Present value = 758 * [ 1 - 1 / ( 1 + 0.004042)⁶⁰] / 0.004042

Present value = 758 * 53.183647

Present value = $40,313.2048

Keys to use in a financial calculator:

2nd I/Y 12, PMT = -758, N = 60, I/Y = 4.85, CPT PV