2. Your neighbor is buying a new electric car. He has the following options to finance the purchase: I. Pays $10,000 today (in time 0) and $60,000 in two years (time 2) II. Make payments under an increasing schedule as follows: Time 0 $7,000 Time 1 $9,000 Time 2 Time 3 Time 4 Time 5 $11,000 $13,000 $15,000 $17,000 III. Make 72 monthly payments over 6 years of $1,100 payable at the end of each month. (a) If the annual interest rate is 7%, calculate the present value of each option. (b) At what interest rate do Option II and Option III have the same present value?
2. Your neighbor is buying a new electric car. He has the following options to finance the purchase: I. Pays $10,000 today (in time 0) and $60,000 in two years (time 2) II. Make payments under an increasing schedule as follows: Time 0 $7,000 Time 1 $9,000 Time 2 Time 3 Time 4 Time 5 $11,000 $13,000 $15,000 $17,000 III. Make 72 monthly payments over 6 years of $1,100 payable at the end of each month. (a) If the annual interest rate is 7%, calculate the present value of each option. (b) At what interest rate do Option II and Option III have the same present value?
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 25PROB
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