Scribd Logo
Upload

Welcome to Scribd!

  • Car PV Example

    Uploaded by

    lesliemrichardson
    3 views1 page
    This document presents the formula for calculating present value (PV) and uses it to compare taking out a loan from a bank versus a dealership to buy a $20,000 car. The bank requires a $5,000 down payment and monthly payments of $500 over 78 months at 3% interest, for a total PV of $15,004.99. The dealership requires no down payment, monthly payments of $300 over 48 months at 3% interest, and the remaining $15,000 due at the end of 4 years, for a total PV of $20,907.32. Therefore, financing through the dealership has a higher total present value.

    Original Description:

    Copyright

    © © All Rights Reserved

    Available Formats

    XLS, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document presents the formula for calculating present value (PV) and uses it to compare taking out a loan from a bank versus a dealership to buy a $20,000 car. The bank requires a $5,000 down payment and monthly payments of $500 over 78 months at 3% interest, for a total PV of $15,004.99. The dealership requires no down payment, monthly payments of $300 over 48 months at 3% interest, and the remaining $15,000 due at the end of 4 years, for a total PV of $20,907.32. Therefore, financing through the dealership has a higher total present value.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    3 views1 page

    Car PV Example

    Uploaded by

    lesliemrichardson
    This document presents the formula for calculating present value (PV) and uses it to compare taking out a loan from a bank versus a dealership to buy a $20,000 car. The bank requires a $5,000 down payment and monthly payments of $500 over 78 months at 3% interest, for a total PV of $15,004.99. The dealership requires no down payment, monthly payments of $300 over 48 months at 3% interest, and the remaining $15,000 due at the end of 4 years, for a total PV of $20,907.32. Therefore, financing through the dealership has a higher total present value.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    of 1

    PV = P* (1-(1+r)^-n)/r

    PV: Present Value e.g. $1,000 per year, for 10 years, at 3% Interest
    P: Payment P=1,000
    r: Interest Rate r=.03
    n: # of payments n=10
    PV=1000*(1-(1+.03)^-10)/.03
    $ 8,530.20

    Car: $20,000
    Bank Dealership
    Put down $5000 $0 Down!!!
    Owe 15,000 48 payments of $300
    Bank PV=300*(1-(1+.03)^-48)/.03
    $500 payments 7580.012
    3% interest
    78 payments Then 15,000 Due at the end of 4 years
    PV=500*(1-(1+.03)^-78)/.03 PV=P/(1+.03)^4
    15004.99 13327.31

    Total 20907.32

    You might also like