Question

You are currently driving to UBC. You want to get an electric bicycle (e-bike) so that you can cycle to BC Instead and decided to purchase a TREK 100 Auto E-bike for $3,000. Your local credit union is promoting green initiatives such as these and is willing to provide you with a $3,000 equal payment amortizing loan for four years at 5% per year, compounded annually.

Answer 1

The present value of the parking cost (payable in advance)

=1015+1015/1.05+1015/1.05^+1015/1.05^3

=$3779.097

Now, the loan of $3000 is availed at 5% annually, So, the present value of the loan @5% will also be $3000

Here, we can see that the present value of the loan is $3000 and the present value of the savings in parking cost is 3779.097, which is more than the cost. Hence, purchasing e-bike is a good investment.