BusM 401
Problem Set #1
Review of Financial Functions
Instructions:
Complete all questions.
This problem set is worth 10 points.
Problems sets are
graded on effort and completeness; you must show your work in order to get full credit.
Short
answers (“checkpoints”) are available for some questions on Blackboard so that you can check
your answers.
Full solutions are available on Blackboard after the problem set is due.
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 upfront rebate and
6.9% financing.
The second deal is no rebate and special 1.9% financing.
Which deal do
you take?
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%?
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 Fall '11
 Bernard
 Finance, Net Present Value, $0, 1.9%, 6.3%

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