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Reference no: EM132596584

Your aunt has just passed away at the age of 120 and left you and your brother,David, a part of her inheritance. She left David a monthly allowance in perpetuity. The first monthly allowance of $ 1,100 will be given to him in 4 months. The remaining monthly allowance will grow at a constant growth rate of 0.2 % per month. David's APR in the bank is 7.4 %.

She also left you a quarterly allowance of $ 5,500 for 20 years (the first cash flow in two months). Your APR in the bank is 6.8 %.

Required:

a. Suppose you cannot wait for the quarterly allowance and would like to buy a new house today.Accordingly, you decided to take a loan, which will be paid out from the quarterly allowance. How much will you be able to get a loan from the bank today?

b.Suppose that Dav,d,too, cannot wait for the quarterly allowance and would like to buy a new house today. Accordingly, David decided to take a loan, which will be paid out from the quarterly allowance. How much will David be able to get a loan from the bank today?

c. Suppose now that, in addition to the allowance you receive, the will states that for the first quarterly allowance of each year, you will receive an additional $ 2000 (first additional cash flow in two months). Now, How much will you be able to get a loan from the bank today (including the allowance calculated in item a)?

Reference no: EM132596584

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