a. How much money (a single lump sum) do you need to deposit today (t=O) to...

a. How much money (a single lump sum) do you need to deposit today (t=O) to have $1,000,000 in 30 years if you earn a 5.5% rate of return compounded annually with no additional investment? What about a 9.5% rate of return compounded annually? How about 1.7%?

b. If you purchase a new 2014 Ford for $30,000 today, what is your monthly payment if you borrow at a 6% nominal rate compounded monthly? Assume that you put 10% of the cost "down" and sign a 48‐month loan for the remaining portion with the first payment due one month from today.

Solutions

Expert Solution

a) Soln:

Note :

The given problem has been solved as per discounted cash flow approach by pulling the maturity amount to present value.

b) Soln:

Note :

Annuity factor of 0.5% at n=48 is 42.58
It has been assumed that 6% rate is per annum hence interest rate for one month would be 6/12 I.e. 0.5%

jeff jeffy answered 2 years ago

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