Question

You are planning to buy a luxurious car. The retail price of the car is $65,000. Fox Auto is making you the following offer: You pay $10,000 down and then $2,000 a month for next 30 months. The APR is 12 percent (compounded monthly). This offer is equivalent to a _____ off the retail price (when paid in cash today).

• A. $3,385
• B. $5,430
• C. $5,768
• D. $6,231
• E. $6,569

Answer 1

c= Cash Flow	2000.000
i= Interest Rate	1.0000%
n= Number Of Periods	30
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $2000[ 1-(1+0.01)^-30 /0.01]
= $2000[ 1-(1.01)^-30 /0.01]
= $2000[ (0.2581) ] /0.01
= $51,615.42
Equivalent price = Doun payment + Present value of EMI
=$10000+51615.42
=$61615
Off = $65000-61615
=$3385
Correct Option :A. $3,385
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