Number 3: Rajesh would like to buy his first car and the one he has his eye on is $25,000, plus an extra 13% HST for a total price of $28,250. The dealership has a deal for $0 down payment and charges 2.79% interest on the loan. Rajesh plans to make car loan payments weekly and has accepted the maximum loan repayment period of 8 years. Question a. How much will his weekly care loan payment be? b. How much will he have paid to the dealership by the time his loan is paid off? c. How much interest will be paid?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Number 3: Rajesh would like to buy his first car and the one he has his eye on is $25,000, plus an extra 13% HST for a total price of $28,250. The dealership has a deal for $0 down payment and charges 2.79% interest on the loan. Rajesh plans to make car loan payments weekly and has accepted the maximum loan repayment period of 8 years.
Question
a. How much will his weekly care loan payment be?
b. How much will he have paid to the dealership by the time his loan is paid off?
c. How much interest will be paid?
Number 4: Hak Young has accumulated some credit card debt while he was in college. His total debt is now $13,864.82 and his credit card charges 19% interest compounded monthly. He is getting worried about his debt and is determined to pay it off completely.
Question
a. What would Hak Young’s minimum payment have to be in order to pay off his debt in 5 years?
b. What will be the total interest paid?
Number 5: Hak Young is daunted by that monthly payment amount and is trying to figure out how he can make paying off his loan more manageable. He went to his bank and found out he could get a personal line of credit that he could then use to pay off his credit card. The line of credit has an interest rate of 9.75% compounded monthly.
Question
a. Assuming he still planned to pay off his debt in 5 years, what would his monthly payments to the bank be now?
b. What will be the total interest paid?
Number 6: Hak Young realizes that the payment amount, even though reduced, is just not manageable based on how much he currently makes and all of the other expenses he also has to budget for. As a result, he decides paying off his debt in 10 years is simply more realistic
Question
a. What would Hak Young’s monthly loan payments be with this new timeline?
b. What will be the total interest paid?
Number 8: Aya and Sakura would like to buy a house and their dream home costs $500,000. Their goal is then to save $50,000 for a down payment and then would take out a mortgage loan for the rest. They plan to put their monthly saved amount in a conservative mutual fund that has a track record of a 5.2%
Question
a. What would their monthly savings amount have to be to reach this goal?
b. What will be the total interest earned be?
Question 9: Aya and Sakura have now saved up their down payment to buy a home, but they still need to borrow to cover the rest. For the home, they want this will require a mortgage of $450,000 to cover the remaining amount and they’re not sure whether they could afford the monthly loan payments. The bank has offered them a mortgage interest rate of 3.25%, compounded monthly.
Questions
a. How much would they have to be able to afford to pay each month in order to pay off their mortgage in 25 years?
b. What is the total amount that would be paid to the lender after 25 years of payments?
Number 10
What if Aya and Sakura could only afford a monthly payment of $1800?
Question
a. What would be the maximum mortgage amount they could afford to borrow from the bank if all the other conditions were the same?
b. What is the total amount that would be paid to the lender over 25 years?
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