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Someone offers to buy your car for four, equal annual payments, beginning 2 years from today. If you think that the present value of your car is $9,000 and the interest rate is 10%, what is the minimum annual payment that you would accept

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jepessoa

Answer:

$3,123.13

Explanation:

we must first determine the price of our car in 1 year = $9,000 x (1 + 10%) = $9,900

this will be the present value of the ordinary annuity (4 equal annual payments)

$9,900 = annual payment x PV annuity factor

PV annuity factor, 10%, 4 periods = 3.1699

annual payment = $9,900 / 3.1699 = $3,123.13

According to the above equation, the minimum annual payment that would need to accept is $3,123.13.

What is the minimum annual payment?

Given Information:

  • Present value=$9,000
  • Interest rate=10%

Firstly, determine the price of our car in 1 year = $9,000 x (1 + 10%) = $9,900

Moreover, this will be the present value of the ordinary annuity (4 equal annual payments)

$9,900 = annual payment x PV annuity factor

PV annuity factor, 10%, 4 periods = 3.1699

Annual payment = $9,900 / 3.1699 = $3,123.13

Learn more about Annual payment, refer to the link:

https://brainly.com/question/15877515

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