What is your net worth four years from now

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Reference no: EM132220940

Question - You want to buy a new $20,000 car. Savings accounts earn 4%, but the car loans cost 8% on four-year loans.

You now have an old car worth $2,000, depreciating at the rate of 20% per year. You have a job that allows you to set aside $5,000 a year toward the purchase of a car. Consider two conditions:

a) You buy the car now, on time ($20,000 less trade in value of $2000).

b) You save until you can pay cash (less trade).

Assume new car prices do not change during the next few years.

i) When can you buy the new car if you adopted plan (b) - how many months from now?

ii) What is your net worth (car plus savings) four years from now, for BOTH a) and b)? Assume that both the new car and the used will depreciate 25% per year by the declining balance method.

Reference no: EM132220940

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