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Problem_Set__1_Solutions

# Problem_Set__1_Solutions - BusM 401 Problem Set#1 Review of...

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BusM 401 Problem Set #1 Review of Financial Functions Solutions 1. You are buying a new minivan for \$22,000. You will finance the purchase over 4 years making monthly payments, and you won’t pay off the loan early. You are putting \$0 down. The dealer offers you two deals. The first deal is a \$2,000 up-front rebate and 6.9% financing. The second deal is no rebate and special 1.9% financing. Which deal do you take? Deal 1: N=48, I/YR=6.9, PV=20,000, FV=0; solve for PMT = \$478.00 Deal 2: N=48, I/YR=1.9, PV=22,000, FV=0; solve for PMT = \$476.33 2. You borrowed \$100,000 and you wish to repay the loan by paying \$10,000 a year. How many years will it take you to repay the loan if the annual interest rate is 8%? How does your answer change if the annual interest rate is 10%? I/YR=8, PV=100,000, PMT=-10,000, FV=0, (end mode, 1 P/YR), solve for N=20.9 At 10%, you will never repay the loan, as you are only keeping up with interest. 3.

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Problem_Set__1_Solutions - BusM 401 Problem Set#1 Review of...

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