Reference no: EM133081166

Question - Suzan has started university with an initial savings of $5000. She has been awarded a 4-year scholarship and will receive $1000 per month, end of each month for the four years. She noted that the current market interest rate on loan is 12.5% p.a. (compounded annually). Suzan managed to find a flat to rent with an agreement to pay a monthly rent of $250. The landlord strictly requires that rent is paid at the beginning of each month, with no upfront bond payment. Suzan did her monthly budgeting and noted that her net savings per month is $300 every month-end. She negotiates a 4-year saving plan with her local banker which agrees to give an annual compound rate of 5% p.a. on her monthly savings, and 2.5% p.a. simple interest on her initial savings. Moreover, Suzan's landlord has given her the option to pay a single sum of $11,150 as rent for the entire 4-years or make a monthly payments of $250 as agreed.

Based on the information provided:

(a) How much will Suzan have in her savings account at the end of 4 years?

(b) Using the rate of 4% p.a. compounded monthly, determine whether it is better for Suzan to pay a single sum of $11,150 for the 4 years of renting or make a monthly payment of $250 for the 4 years as an alternative.

(c) List two factors would influence Suzan's decision in part b.