Calculate the present value of each option

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Reference no: EM131448331

Your neighbor is buying a new recreational vehicle (RV). He has the following options to finance the RV:

I. Pays $70,000 today (in time 0)

II. Buy under a "no payments for three years" program by agreeing to pay $80,000 three years from today (in time 3).

III. Make 84 monthly payments over 7 years of $1000 payable at the end of each month.

(a) If the interest rate is 6% annually, calculate the present value of each option.

(b) At what interest rate do Option II and Option III have the same present value?

Reference no: EM131448331

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