1
Suggested solutions for Tutorial 1 questions
1.
If the monthly payment is denoted as
C
, then:
90
.
202
8000
12
/
1
.
0
)
12
/
1
.
0
1
(
1
48
C
C
where
i
=0.1/12 per month (i.e.
i
is monthly rate).
Therefore, the effective annual interest rate on the loan is:
(1+
i
)
12
1 = (1+0.1/12)
–
1 = 10.47 % p.a.
2.
a.
30
.
267
06
.
0
06
.
1
1
100
3
b.
If the payment stream is deferred by an additional year, then each payment is
discounted by an additional factor of 1.06.
Therefore, the present value is
reduced by a factor of 1.06 to: ($267.30/1.06) = $252.17
3.
a.
58
.
15189
01
.
0
01
.
1
1
400
48
where
i
= 0.12/12 = 1% per month
Your monthly payments of $400 can support a loan $15,189.58.
With a down
payment of $2,000, you can pay at most $17,189.58 for the car.
b.
02
.
17982
01
.
0
01
.
1
1
400
60
You can take out a loan of $17,982.02 based on this payment schedule, and
thus can pay $19,982.02 for the car.
4.
The present value of the lease option is
32
.
38132
07
.
0
07
.
1
1
8000
6
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2
Since $38,132.32 < $40,000 (the cost of buying a truck), it is less expensive to lease
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 Three '11
 jannis
 Time Value Of Money, Interest, Interest Rate, Payment, Credit card

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