# Ex 4R Ans - ACE 240 Exercise 4. Cash, Acquisitions, &...

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ACE 240 Exercise 4. Cash, Acquisitions, & Credit Management Instructions: Be sure to include your name and section at the top corner of each page. Answers should be typed or neatly written; for calculations, in order to consider partial credit, the logic of your answer must be shown. Each question is worth 1 point except as indicated . 1. Dexter has a savings account that earns APR 3% compounded daily. If he puts \$1,200 into this account today how much will he have 2 years from now? =FV(3%/365,2*365,0,-1200,0) = \$1,274.20 2. Briefly describe some of the differences from a financial perspective between housing cooperatives and condominiums. The main difference is residents in housing cooperatives suffer when there are vacancies. With cooperatives, tax and other benefits are distributed proportionally rather than evenly. 3. Lenders of auto loans will typically require that an applicant has a monthly loan payment of 20% of net income as long as there are no other outstanding installment loans. In a few choice sentences, explain the economic reasoning behind this standard. Lenders want to minimize the chance of defaulting on the loan. By limiting the loan payment to 20%, the person can use the rest of the money for other expenses including mortgage, utilities, and food. 4. How large an auto loan could you afford if you could pay \$300/mo for 60 months at an interest rate of 8% APR? (Hint: Use beginning-of-the-month payments) =PV(8%/12,60,-300,0,1) = \$14,894.17 5. [5 points] Your pal Michael has come to you for advice on whether to lease or buy a sweet convertible selling for \$51,000. The state sales tax rate is 7%. Michael has enough money saved for the down payment on a loan if he decides to purchase. He earns 3% APR compounded monthly on his saved funds. The specific loan and lease terms are described below. Show your calculations and label your key findings. [Hint:

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## This note was uploaded on 08/26/2009 for the course HORT 105 taught by Professor Masiunas during the Spring '08 term at University of Illinois at Urbana–Champaign.

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Ex 4R Ans - ACE 240 Exercise 4. Cash, Acquisitions, &...

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