Present Value - Accounting Examples (for excel download: PV2)

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Example 4 A:  Bying a car.   What is the interest rate?

The car could be purchased for cash ($30,000) or for 5 annual payments of $ 7,514.  The payments are to be made at the end of the next five years.

To determine the interest rate: 
  • $30,000 = $7,514 * PVa(X%,5)
  • $30,000/$7.514  = X
  • 3.992547  = X 
  • ---> look up 3.992547 in the present value table for annuities for 5 periods and determine that the interest rate is 8%.
NOTE: Examples 4 (a) or (b) are useful, when you are trying to decide if an offered deal is a good idea.  See Example 3.

Return to: home | | basic PV  | pv & accounting | annuities I  |  annuities II | Examples: 1 - PV of Note Receivable | 2 - Issuance of Bond | 3: Cash or Note Payable? | 4 A: Buying a car - interest rate? |4 B: Buying a car - payments: | Practice quizzes (from an old text book, but still working)