Time Value of Money calculations are a great way to figure out how much payments will...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Time Value of Money calculations are a great way to figure out how much payments will be on loans or how much we need to save over time to achieve our financial goals. The calculation always uses the variables: N (number of periods), I/Y (Interest rate per period), PMT (Payment Amount per period), PV (Present Value), and FV (Future Value). Given 4 variables we can calculate the 5th variable. If you want to buy a new car, you can figure out the payments (PMT) if you know the amount of the loan (PV), the interest rate (I/Y), and the number of payments you want to make (N). What about future value? Well, with a loan we want to pay that thing off, so the FV is $0. For example: I am looking at a Tesla Model S Dual Motor with a $99,380 price tag out including taxes, fees, and delivery. I want to put $10,000 down, my estimated interest rate is 4.9% and I want a loan for 6 years (72 months). Now I can figure out my payment using my financial calculator. N = 6 years x 12 months = 72 pay periods I/Y = 4.9%/12 = 0.408333% per month (use 6 decimals) PV = $99,380 - $10,000 down payment = $89,380 financed FV $0 (pay the loan off) Solve for PMT = ?? -$1,435.32 (it is negative because I'm paying it every month, that money leaves my bank account) So, my payments will be $1,435.32 per month for 6 years if I want to buy that Tesla. I can take this a step further by figuring out the total cost of the car and the total interest I'll pay on the loan. Take the payment and multiple it by the number of payments. Add the down payment to get the total cost of the car. Then, Subtract the initial price of the car to get the amount of interest paid over the loan. $1,435.32 x 72 = $103,343.04 in payments $103,343.04 + $10,000 = $113,343.04 is the total cost of the car $113,343.04 $99,380 $3,963.04 in total interest paid over the course of the loan. Discussion Question Find a car, maybe your dream car, and look it up on a dealership's website. Find the price (to make it easier, assume that it includes taxes and fees), estimate a down payment you will use, and then calculate your estimated payment for 72 months. Use 7.9% for your I/Y (don't forget to convert it to monthly by dividing by 12). Then figure out th of the car, and the total interest you'll pay over the course of the loan. Time Value of Money calculations are a great way to figure out how much payments will be on loans or how much we need to save over time to achieve our financial goals. The calculation always uses the variables: N (number of periods), I/Y (Interest rate per period), PMT (Payment Amount per period), PV (Present Value), and FV (Future Value). Given 4 variables we can calculate the 5th variable. If you want to buy a new car, you can figure out the payments (PMT) if you know the amount of the loan (PV), the interest rate (I/Y), and the number of payments you want to make (N). What about future value? Well, with a loan we want to pay that thing off, so the FV is $0. For example: I am looking at a Tesla Model S Dual Motor with a $99,380 price tag out including taxes, fees, and delivery. I want to put $10,000 down, my estimated interest rate is 4.9% and I want a loan for 6 years (72 months). Now I can figure out my payment using my financial calculator. N = 6 years x 12 months = 72 pay periods I/Y = 4.9%/12 = 0.408333% per month (use 6 decimals) PV = $99,380 - $10,000 down payment = $89,380 financed FV $0 (pay the loan off) Solve for PMT = ?? -$1,435.32 (it is negative because I'm paying it every month, that money leaves my bank account) So, my payments will be $1,435.32 per month for 6 years if I want to buy that Tesla. I can take this a step further by figuring out the total cost of the car and the total interest I'll pay on the loan. Take the payment and multiple it by the number of payments. Add the down payment to get the total cost of the car. Then, Subtract the initial price of the car to get the amount of interest paid over the loan. $1,435.32 x 72 = $103,343.04 in payments $103,343.04 + $10,000 = $113,343.04 is the total cost of the car $113,343.04 $99,380 $3,963.04 in total interest paid over the course of the loan. Discussion Question Find a car, maybe your dream car, and look it up on a dealership's website. Find the price (to make it easier, assume that it includes taxes and fees), estimate a down payment you will use, and then calculate your estimated payment for 72 months. Use 7.9% for your I/Y (don't forget to convert it to monthly by dividing by 12). Then figure out th of the car, and the total interest you'll pay over the course of the loan.
Expert Answer:
Answer rating: 100% (QA)
Im curious about a Tesla Model 3 Long Range which has a listed price on their webs... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
The Signal x(t) below is defined for the range Suppose Signal x(t) is applied to the terminals of a system to produce an output y(t). Sketch and properly label the signal x(t) 0t 4.
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Being employed as a casual barista in a local caf with a flourishing catering business called 'Brown's Caf' , where you are supervised by the caf owner, Jessica Williams. The company employs 20...
-
5/7 + (- 3/7) Find the sum by hand.
-
Park Shoe Shop, Ltd. had goods available for sale in 2017 with a retail price of 120,000. The cost of these goods was 84,000. If sales during the period were 90,000, what is the estimated cost of...
-
Describe some substantive tests applicable to fixed asset additions and disposals.
-
The average annual cost (including tuition, room, board, books, and fees) to attend a public college takes nearly a third of the annual income of a typical family with college age children (Money,...
-
The Institute of Business Ethics states that its role is to: "... raise public awareness of the importance of doing business ethically... and to help organisations to strengthen their ethics culture...
-
The linear approximation to f(x) = E at x = 8 is given by %3D O a. 2 O b. Z+16 12 O d. 2 + X
-
Select at least two news articles that discuss demand, supply, and equilibrium price of two substitute products, like beef and chicken; butter and margarine. It can be two articles that discuss both...
-
Blossom Company purchases $50,300 of direct raw materials and it incurs $65,400 of direct factory labor costs. Supporting records show that (a) the Assembly Department used $25,800 of direct raw...
-
Sweet Catering completed the following selected transactions during May 2016: May 1: Prepaid rent for three months, $1,200 May 5: Received and paid electricity bill, $130 May 9: Received cash for...
-
A laser emits a pulse of light which travels at a speed of c (in vacuum) relative to the laser. Does this mean that the speed of the laser relative to the light pulse is also c? Explain your...
-
A 5.2 x10 -4 V/m electric field creates a 2.0 x10 17 electrons/s current in a 1.5-mm-diameter aluminum wire. A. What is the drift speed? Express your answer using two significant figures. B. What is...
-
Michaels Plumbing Company has the following transactions for the year a. December 1 Issued capital stock for $50,000 to start plumbing business. b. December 1 - Paid gas expense $500. c. December 1...
-
(a) What do data breach notification laws require? (b) Why has this caused companies to think more about security?
-
In one area along the interstate, the number of dropped wireless phone connections per call follows a Poisson distribution. From four calls, the number of dropped connections is...
-
The daily number of accidental disconnects with a server follows a Poisson distribution. On five days \[\begin{array}{lllll}2 & 5 & 3 & 3 & 7\end{array}\] accidental disconnects are observed. (a)...
-
Refer to Exercise 7.12. (a) Obtain the maximum likelihood estimates of \(\mu\) and \(\sigma\). (b) Find the maximum likelihood of the probability that the next run will have a production greater than...
Study smarter with the SolutionInn App