Steve would like to buy a new car but should complete

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Reference no: EM13477523

1) Steve would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car. The current price of the car Steve wants to buy is $22,000, and the dealer expects the price of a similar new car to be $24,000 in two years. If Steve can earn an annual interest rate of 3% on his money, should he buy the car now or wait for two years? Note: Storage costs if Steve purchases the car are $0. Please limit your considerations to the factors offered in the answer choices.

A) Buy now because if Steve invests the $22,000 today it will only increase in value to $23,340, and this is less than the cost of his desired new car in two years.

B) Steve is indifferent because his $22,000 investment will be worth exactly $24,000 after two years.

C) Buy in two years because at $24,000 the car will cost less than the $24,385 Steve will have after investing the money for two years.

D) Buy in two years because $24,000 is a real deal for the car Steve wants.

2) A home improvement firm has quoted a price of $9,800 to fix up John's backyard. Five years ago, John put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up?

A) Yes; John now has exactly $9,800 in his home improvement account.

B) No; John has only $9,687 in his home improvement account.

C) Yes; John now has $10,519 in his home improvement account.

D) There is not enough information to answer this question.

3) You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this bond is discounted at a rate of 3.875% per year, what is today's price (present value) for this bond?

A) $8,417

B) $8,500

C) $5,654

D) $10,000

4) Your parents plan to spend $20,000 on a car for you upon graduation from college. If you will graduate in three years and your parents can earn 4.125% annually on their investment, how much money must they set aside today for your car?

A) $20,000

B) $17,704

C) $17,716

D) $16,387

5) Four years ago, Robert's annual salary was $52,500. Today, he earns $73,800. What has been the average annual rate of growth of Robert's salary?

A) $5,325 per year

B) 10.38%

C) 41.52%

D) 8.89%

Reference no: EM13477523

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