1a. 1b. 2. You are looking to buy a new car. The purchase price of the one you want is $15,000 and requires a $3,000 down payment. If the financing rate is 6.75% APR for four years, what will your monthly payments be? Suppose there is a special promotion that allows you to get $500 back (and still finance the rest at 6.75% APR) or get a 2.9% APR for four years. Which option will you choose? You can afford $1,000 a month for a house payment. You figure taxes and insurance will be about $250 a month. Assuming mortgage rates are 7% APR for a fixed rate loan, how much can you pay for a house assuming: a) a 20 year mortgage; b) a 25 year mortgage; c) a 30 year mortgage?
1a. 1b. 2. You are looking to buy a new car. The purchase price of the one you want is $15,000 and requires a $3,000 down payment. If the financing rate is 6.75% APR for four years, what will your monthly payments be? Suppose there is a special promotion that allows you to get $500 back (and still finance the rest at 6.75% APR) or get a 2.9% APR for four years. Which option will you choose? You can afford $1,000 a month for a house payment. You figure taxes and insurance will be about $250 a month. Assuming mortgage rates are 7% APR for a fixed rate loan, how much can you pay for a house assuming: a) a 20 year mortgage; b) a 25 year mortgage; c) a 30 year mortgage?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Time Value of Money
**1a.**
You are looking to buy a new car. The purchase price of the one you want is $15,000 and requires a $3,000 down payment. If the financing rate is 6.75% APR for four years, what will your monthly payments be?
**1b.**
Suppose there is a special promotion that allows you to get $500 back (and still finance the rest at 6.75% APR) or get a 2.9% APR for four years. Which option will you choose?
**2.**
You can afford $1,000 a month for a house payment. You figure taxes and insurance will be about $250 a month. Assuming mortgage rates are 7% APR for a fixed rate loan, how much can you pay for a house assuming:
a) a 20 year mortgage;
b) a 25 year mortgage;
c) a 30 year mortgage?
**3.**
Your TV blows up while watching Springer. The new one you would like to have costs $500, which you don't have right now. Rent-To-Own has the TV you want for $10.56 per week, due on Monday of each week with the first payment to be made when you take possession. At the end of 1 year (52 payments), you own the set. What interest rate are they charging?
Transcribed Image Text:**Present Value of an Annuity Table**
This table presents the present value (PV) factors for an annuity at various interest rates and periods (Pds). An annuity is a financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.
**Columns Explanation:**
- **Pds:** This column represents the periods or number of time periods (e.g., years, months).
- **0.241667% - 8.000000%:** These columns show the present value factors at different interest rates (ranging from 0.241667% to 8.000000%).
**Row Explanation:**
- **Pds 1 - 360:** Rows represent the number of periods for which the annuity payments are made. For instance, 1 period, 10 periods, 15 periods, up to 360 periods.
**Detailed Explanation of the Table:**
- **1 Pd:** This row shows the PV factors when the annuity is for 1 period. For instance, at an interest rate of 0.241667%, the PV factor is 0.99759, meaning if you receive $1 at the end of 1 period, its present value is $0.99759.
- **10 Pds:** This row indicates the PV factors for a 10-period annuity. At an interest rate of 8.000000%, the PV factor is 6.71008, meaning receiving $1 at the end of each period for 10 periods has a present value of $6.71008 if the interest rate is 8.000000%.
- **360 Pds:** The last row shows the PV factors for a 360-period annuity. At an interest rate of 6.000000%, the PV factor is 150.30757, indicating receiving $1 at the end of each of the 360 periods has a present value of $150.30757.
**Utilization:**
This table can be used to determine the present value of an annuity for various periods and interest rates. To find the present value of an annuity:
1. Identify the number of periods in the "Pds" column.
2. Locate the appropriate interest rate column.
3. Multiply the PV factor from the table by the annuity payment amount.
**Example Calculation:**
Suppose you wish to find the present value of an annuity that pays
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