Answer to Question #185953 in Financial Math for Eleine

Question

Polly purchased car. She paid ₱ 150,000.00 as down payment and ₱5,500.00 payable at the beginning of each month for 48 months. Money is worth 12% compound monthly.

• What is the periodic rate?
• _1%
• _12%
• _0.01%
• _2%
• How many payments must be made?
• 12
• 24
• 6
• 48
• What is the equivalent cash price of the car?
• ₱210,945.35
• ₱340,091.59
• 360,945.35
• ₱490,091.59

Answer 1

1.

$periodic \space rate = \frac{stated\space or\space annual\space interest\space rate}{no. \space of \space compounding}$

$=\frac{12\%}{12}=1\%$

2.

48 payments must be made because she needs to make monthly payments at the beginning of each month for 48 months.

3.

$equivalent \space cash price \\= down \space payment + present\space value \space of monthly\space payments$

N = no. of months = 48; I/Y = periodic rate = 1%; PMT = monthly payment = 5,500; FV = future value = 0 > CPT

computing present value we get

PV = 210,945.35

equivalent cash price $= ₱150,000 + ₱210,945.35 = ₱360,945.35$

the equivalent cash price of the car is ₱360,945.35.