Terry Brown purchased a used car and agreed to pay $1,000 per month for two-and-a-half years with the first payment due at the end of the first month. What was the purchase price of the car assuming an annual rate of 12%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The purchase price is the present value of the annuity payments. Using the formula for the present value of an annuity, with monthly payments of $1,000, an annual interest rate of 12% (or 1% per month), and a total of 30 payments (2.5 years), the present value is approximately $25,808.

Terry Brown Purchased a Used Car and Agreed to Pay