Answer to Question #133705 in Financial Math for sanjida

Question

A wagon is purchased on installment basis, such that Tk. 5,000 is to be paid on the
signing of the contract and four yearly installments of Tk. 3,000 each payable at the
end of the first, second, third and fourth year. If interest is charged at 5% per annum,
what would be the cash down price?

Answer 1

Now the cash down price = present value(PV) of the wagon and we have an annuity of lasting for 4years with regular annual payments of Tk. 3,000 at the end of each year at 5% interest rate

PVA = payment x (1- (1+ rate)^-n)/rate

where interest rate = 5%,

n = 4years

PVA = (3,000 x (1- (1+0.05)^-4))/ 0.05

PVA = Tk. 10,637.85

PV = 10,637.85 + 5,000

PV = 15,637.85

So the cash down price is Tk. 15,637.85