Problem Set #1
Due Thursday April 24
Please show all work to receive full credit. We do not grade solely on correct answers but
the processes involved in each problem. You may attach extra paper or complete the
assignment on other paper if you wish.
Daddy Cane just graduated from UC Davis with two degrees, Managerial Economics and
Music. He decides that a regular nine to five job just won’t do so he chooses to become a
rapper. But not just any rapper, his songs will teach finance, investing, real estate, and
accounting. He figures with his musical talent and savvy business mind he will make
millions. However, to get his successful rapper image off the ground he will need a few
things first: Ice (jewelry)… and lots of it, a nice whip with some new shoes (a nice car
with new rims), and a hot party pad (a house that is great for parties). Amazingly, he
gathers enough financing from his friends and family to purchase the ice and whip with
new shoes however he still needs that party pad. Fortunately he has enough money for an
$80,000 down payment. The house he wants is a gorgeous 4000 square foot Frank Lloyd
Wright design located in the hills of Truckee (come on, he only has $80K to put down).
The house costs $400,000 and he qualified for a fully amortized loan (a 30 year loan that
will be fully paid off at the end) that has an interest rate of 6.78%. Please fill out the
Note: Numbers maybe be slightly off due to rounding, but process is correct.