Question

You purchased a new car. You want to set aside enough money in a bank account today to pay the maintenance on the car for the first 5 years. It has been estimated that the maintenance cost of the car is as follows: (Assume the bank pays 5% interest)

a) Calculate the present value of maintenance costs
b) Determine the future value of maintenance costs
c) Assess the depreciation of the car
d) Evaluate the insurance cost of the car

Answer 1

To calculate the present value of maintenance costs, divide the maintenance cost by (1 + interest rate)^years. To determine the future value, multiply the maintenance cost by (1 + interest rate)^years. Assess depreciation by calculating the difference between the initial value and current value of the car. Evaluate insurance costs by gathering information about premiums and coverage options.

Step-by-step explanation:

To calculate the present value of maintenance costs, we can use the formula:

Present Value = Maintenance Cost / (1 + Interest Rate)Years

So, for each year, we can calculate the present value and sum them up to get the total present value.

To determine the future value of maintenance costs, we can use the formula:

Future Value = Maintenance Cost * (1 + Interest Rate)Years

Assessing the depreciation of the car requires knowing its initial value and its current value. The depreciation can be calculated as the difference between the initial value and the current value. Lastly, evaluating the insurance cost of the car would require gathering information about the insurance premiums and coverage options available for the car.