Question

Please answer by 10/21 9PM

A)

After graduation and just two months on your new job, notwithstanding advice to the contrary, you decide to purchase a new BMW. The price is $45,000 and the tradein value of the old reliable car is $9,000, that acts as a down payment. Financing is available at 6% APR (annual percentage rate) with a term of 5 years requiring monthly payments beginning the first month after the purchase. Calculate the amount of the monthly payment.

B)

Christopher Robin just turned 27 and is considering participating in the 401(k) plan of his company. If he contributed $4,000 at the end of this year and each year thereafter, then the company would match his contribution in the amount of $2,000 each year. If the funds would earn a rate of 6.25% annually and contributions were made for 30 years, then how much would be in the account at the end?

C)

The Really Useful Company needs new equipment. The vendor has offered to lease the equipment for five years with quarterly payments of $2,200 with the first payment due at the time of the signing of the lease, or sell the equipment for $35,000. The Company in its analysis assumes an interest rate of 6% and no value for the equipment at the end of five years. Which alternative is better?

D)

Peachtree Doors borrowed $50,000 to finance a machine. The repayment terms called for three equal annual payments beginning one year from the date of the loan. The interest rate was 6%. Prepare an amortization schedule showing: total payment, interest, and principal.

Answer 1

(A)

loan amount = Cost -Down payment

=> loan Amount = $45000-$9,000 = $36000

Present value of annuity due(Payment at begin) =

A = Monthly payment

i = Monthly interest rate = 6% / 12 = 0.5% or 0.005

n=Total period = 5 yr*12 = 60 month

Present value of annuity= Loan amount = $36000

hence

=> A or monthly payment required = $692.52

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(B)

Payment are to be made at the end of every year.

Total contribution per year = Contribution by Christopher Robin+Contribition by Employer

=>Total contribution per year= $4000+$2000= $6000

Future value of ordinary Annuity(Paymet at end) =

A = Annual contribution = $6000

i = annual interets rate = 6.25% or 0.0625

n = total period = 30 yr

hence

Future value or value at end =

=>Future value or value at end=$495751.54

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(C)

Present value of the cash outflows under lease option =

A = Quarterly payment = $2,200

i = Quarterly interest rate = 6% / 4 = 1.5% = 0.015

Number of period = 5 year * 4 quarter per year = 20 quarter.

hence Present value of the cash outflows under lease option =

=>Present value of the cash outflows under lease option= $38337.57

Present value of cash outflow under direct purchase = $35000

Direct Purchase alternative is better as the persent value of cash outflow is less under this alternative.

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(D)

Present value of the loan =

A = Annual payments

Present value of the loan =$50000

i = annual interet rate = 6%

n = 3 year

hence,

=> Annual payments = $18705.49

.	A	A*6%	B	C	B-C = D	A-D
Year	Opening loan balance	Interest @6%	Total Payments	Interest payment	Principal payment	Closing loan
1	50000.00	3000.00	18705.49	3000.00	15705.49	34294.51
2	34294.51	2057.67	18705.49	2057.67	16647.82	17646.69
3	17646.69	1058.80	18705.49	1058.80	17646.69	0.00