Answer:
B. $4,520.64
Explanation:
The computation of the down payment is shown below:
= {Monthly payment × (1 - 1 + interest rate)^-number of periods} ÷ {Interest Rate}
where,
Interest Rate = 8% ÷ 12 months = 0.66667
= {500 × (1 - 1 + 0.67)^-48} ÷ {0.67}
After solving this, the amount is $20,480.956
Now the down payment is
= $25,000 - $20,480.956
= $4,519.04 approx
The appropriate down payment that the salesperson would ask for would be B. $4,520.64.
The down payment would be the difference between the present value of the monthly payments and the cash price.
The present value of the monthly payments is:
= Amount x (1 - ( 1 + r) ^-number of periods) / rate
Rate = 8% / 12 months
= 8/12% per month
Present value will be:
= 500 x ( 1 - ( 1 + 8/12%)⁻⁴⁸ )/ 8/12%
= $20,480.956
Down payment:
= 25,000 - 20,480.956
= $4,520.64
In conclusion, option B is correct.
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