Buying the Car Now → Present Value Today or Payment

Buying the Car Now → Present Value Today or Payment Plan? A local car dealer has a used car that would suit Akash. The dealer is offering monthly payments of $300 for 2 years. The payment plan already includes interest at 9% per annum, compounded monthly.

1. How much will Akash pay in total if he decides to use the payment plan of $300 per month for 2 years?

2. How much will he pay for the car if he pays the present value today? Remember that the present value is the amount without interest.

3. How much less will he pay if he pays the present value today instead of accepting the payment plan?

4. Why might Akash prefer the payment plan even though it will cost him more overall? Make reference to the above calculations.

5. Why might it be better for Akash to save regularly for 4 years to buy a car, instead of buying this one now? Make reference to the above calculations.