D Question 7 20 pts You can purchase an appliance (refrigerator, furnaces, A/C,

Question

D Question 7 20 pts You can purchase an appliance (refrigerator, furnaces, A/C, etc.) maintenance contract. You can pay $1,000 today for a year's maintenance coverage or pay $165 per month, each month, starting today, for 6 months. If your investments earn 5.00% APR (compounded monthly), how much would you save or would it cost you (in present value terms) to pay on a monthly basis? O You would save $24.28 O You would save $10.13 O You would lose $24.28 You would lose $10.13 You would save $20.21 O You would lose $20.21 No new data to save. Last checked at 6:23pm Submit Quiz

Explanation / Answer

Answer = 1 CALCULATION OF THE PV OF CASH OUTFOLW OF $ 165 PER MONTH INTEREST RATE IS 5% Months Cash OutFlow   PVF @ 5% /12 Month Present Value 1 $                                 165.00                          1.00000 $                        165.00 2 $                                 165.00                          0.99585 $                        164.32 3 $                                 165.00                          0.99172 $                        163.63 4 $                                 165.00                          0.98760 $                        162.95 5 $                                 165.00                          0.98350 $                        162.28 6 $                                 165.00                          0.97942 $                        161.60 Total $                        979.79 CALCULATION OF THE GAIN OR LOSS ON PAY MONTHLY Total cost at pay in once = $                    1,000.00 Less: Total cost with pay monthly = $                        979.79 Saving $                          20.21 Answer = Option 5 = You Would save $ 20.21

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