Reference no: EM132564824
Here are a couple of questions that I need help with:
1) Ann Woodhouse is considering the purchase of a house. She expects that she will own the house for 10 years and then sell it for $ 5 million. What is the most that she would be willing to pay for the house if the she can earn 12% on a similar risk investment.
2. Peter Green bought a $15,000 Honda civic with 20 percent down and financed the rest with a four-year loan at 8% stated annual interest, compounded monthly. What is his monthly payment if he starts the payment one month after the purchase? Show his schedule of interest and principal payment he makes during every month of his loan payment.
3. Cal Thomas, 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will be invested to earn an annual return of 10 percent, which is assumed attainable over the next 40 years.
a. If Cal makes annual end-of-year $2,000 deposits into the IRA, how much would he have accumulated by the end of his 65th year?
-If Cal decides to wait until age 35 to begin making annual end-of-year $2,000 deposits into the IRA, how much would he heave accumulated by the end of his 65th year?
4.
(a) Kangaroo Autos is offering free credit on a new $10,000 car. You pay $1000 down and then $600 a month for the next 15 months. . Turtle Motors next door does not offer free credit but will give you $1000 off the list price. If the rate of interest is 10% a year, which company is offering the better deal? Show your calculations.
(b) Kangaroo Autos is offering free credit on a new $10,000 car. You pay $1000 down and then $300 a month for the next 30 months. . Turtle Motors next door does not offer free credit but will give you $1000 off the list price. If the rate of interest is 10% a year, which company is offering the better deal? Show your calculations. Does your decision change from Part (a) if so why?
5. Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?
6. A retirement home at Deer Trail Estates now cost $85,000. Inflation is expected to cause this price to increase at 6 percent per year over the 20 years before C.I. Donovan retires. How large an equal annual end-of-year deposit must be made each year into an account paying an annual interest rate of 10 percent for Donovan to have the cash to purchase a home at retirement?
7. You have a choice of accepting either of two 5 year cash flow streams One cash flow stream is an annuity, and the other is a mixed stream. Assuming an opportunity cost of 9% which alternative (A or B) would you prefer.
End of Year Cash Flow Stream
A B
1 $700 $1,100
2 700 900
3 700 700
4 700 500
5 700 300
8. Carol borrows $30,000 from the bank. For a six year loan, the bank requires annual end of year payments of $5,878.05. The annual interest rate on the loan is?
9. Tim Smith is shopping for a used car. He has found one priced at $4500. The dealer has told Tim that if he can come up with a down payment of $500, the dealer will finance the balance of the price at a 12% annual rate over 2 years (24 months). Assuming that Tim accepts the dealer's offer, what will his monthly (end-of-month) payment amount be?
10. As a winner of a breakfast cereal competition, you can choose one of the following prices
-$100,000 now.
-$180,000 at the end of five years.
-$11,400 per year forever.
-$19,000 for each of 10 years.
-$6500 next year and increasing thereafter by 5% a year for ever.
If the interest rate is 12%, which is the most valuable prize?