An appliance is for sale at either (a) P15,999 cash or (b) on terms, P1,499 each month for the next 12 months. Money is 9% compounded monthly. Which is lower, the cash price or the present value of the installment terms? Explain.

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ANDROMACHEGO ANDROMACHEGO · Answer 1

Answer:

Cash price

Step-by-step explanation:

The computation is shown below:

The Interest rate per month (r) = (9% ÷ 12) = 0.75%

Now Present value of the monthly payment is

= PMT × {[(1 + rate of interest)^number of years - 1] ÷ rate of interest}

= 1,499 × {[(1 + 0.75%)^12 - 1] ÷ 0.75%}

= 18,748.89

And the cash price is 15,999

So, the cash price would be lower

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CRICETUSGO CRICETUSGO · Answer 2

The cash price would be lower. A further explanation is below.

According to the question,

Interest rate per month,

[tex]r = \frac{9 \ percent}{12}[/tex]

[tex]= 0.75[/tex] (%)

hence,

The Present value of the monthly payment will be:

= [tex]PMT\times \frac{{(1 + Interest \ rate)^{number \ of \ years} - 1}}{Interest \ rate}[/tex]

= [tex]1499\times \frac{[(1 + 0.75 \ percent)^{12} - 1] }{0.75 \ percent}[/tex]

= [tex]18748.89[/tex]

As we can see that the cash price is 15,999. Thus the above answer is right.

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