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# 1_answer - Suggested solutions for Tutorial 1 questions 1...

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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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1_answer - Suggested solutions for Tutorial 1 questions 1...

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