Question

a. You are interested in purchasing a new automobile that costs $37,000. The dealership offers you a special financing rate of 12% APR (1%) per month for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer's financing deal, then your monthly car payments would be closest to:

A. $779

B. $1,364

C. $974

D. $1,559

B. Credenza Industries is expected to pay a dividend of $2.00 at the end of the coming year. It is expected to sell for $69 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?

A. $63.30

B. $3.86

C. $65.14

D.$5.70

Answer 1

Q-a)

Loan amount = $37,000

Calculating the Monthly car Payment:-

Where, P = Loan amount = $37,000

r = Periodic Interest rate = 1%

n= no of periods = 48 months

Monthly payment = $974

Option C

Q-B)

Dividend at year end(D1) = $2

Expected price in year 1(P1) = $69

Equity cost of capital(Ke) = 9%

Calculating the Stock Price today:-

P0 = 1.8349 + 63.3028

P0 = $65.14

Current price = $65.14

- Expected Capital gain on stock = Expected price in year 1 - Current price

= $69 - $65.14

Expected Capital gain on stock = $3.86

Option B