Pretend that you are saving up for a down payment on a car or house. Pretend that we get an inheritance of $4,000 so we put the inheritance in a special bank account that pays 4.00% APR compounded quarterly for four-years. We also decide to save $400 a quarter into this savings account to help grow our down payment. a. How much money do we have in our savings account at the end of all these years? b. How much interest do we earn in total?

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
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Pretend that you are saving up for a down payment on a car or house. Pretend that we get an inheritance of $4,000 so we put the inheritance in a special bank account that pays 4.00% APR compounded quarterly for four-years. We also decide to save $400 a quarter into this savings account to help grow our down payment. a. How much money do we have in our savings account at the end of all these years? b. How much interest do we earn in total?
2. Pretend that you take out a six-year, $35000 car loan at 6% APR
compounded monthly.
Let's also pretend that you don't like debt so you decide to pay an
extra $60 every month to the loan.
Last monthly payment clarification when paying extra money to a loan:
modify your very last monthly payment so that the loan is paid off (near
zero $). All of your monthly payments will be the exact same with one
exception: your very last payment will be something less than normal to
end the loan. This is what happens in the real world btw when you
regularly pay extra money towards a loan.
a. When will the loan be paid off?
b. How much money do you save overall by paying a little extra
($60) every month to the loan? (use the Payment column to get
your answer.)
Transcribed Image Text:2. Pretend that you take out a six-year, $35000 car loan at 6% APR compounded monthly. Let's also pretend that you don't like debt so you decide to pay an extra $60 every month to the loan. Last monthly payment clarification when paying extra money to a loan: modify your very last monthly payment so that the loan is paid off (near zero $). All of your monthly payments will be the exact same with one exception: your very last payment will be something less than normal to end the loan. This is what happens in the real world btw when you regularly pay extra money towards a loan. a. When will the loan be paid off? b. How much money do you save overall by paying a little extra ($60) every month to the loan? (use the Payment column to get your answer.)
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