Question

Peter has decided to purchase his dream car for $39,000 using a bank loan today. No down payment is required. The bank offered a 6-year loan at a 3% APR. Payments will be made monthly, and the first payment will be made one month from today. Suppose that he would like to payoff the remaining balance on his car loan at the end of the fourth year (after 48 payments). What will be Peter’s car loan payoff amount? (example: $12,345.67)

Q14) Juan has just won a $200 million lottery. He can get all the money now (lumpsum option), or he can get $1 million per month for the next 25 years, first payment starting today. Whichever option he chooses, he can save his money at a local bank, which is offering a 6% per year return on deposits. Juan is not sure if he should pick a lumpsum or monthly payments option. What is Juan’s benefit (or loss) of choosing the lumpsum option in today’s dollars? (example: benefit/loss, of $12.345 million)

Q15) At what monthly payment, Juan is indifferent to lumpsum or monthly option in the previous question (Q14)?

Answer 1

Ques 14

Result: Getting 200,000,000 now is better than having 1,000,000 per month for next 25 years (as this option leads to a present value of 155,982,898, which is lesser than 200M)

QUEs15

:

So answer is 1,288,603.80

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