You are purchasing a new TV at Visions Electronics, and the salesperson is trying to convince you to buy a four-year extended warranty. The cost of the warranty to you today will be $259. However, if there is no claim against the warranty, you will get a store credit for $259 to spend four years from now. Assume you won't have any problems with your TV and you plan on buying more electronics at Visions in four years (so you would be certain to use the store credit). Also assume the interest rate is 3% per year. a. What is the value to you today of the promised store credit? b. Given your answer to a, what is the net cost of the extended warranty? a. What is the value to you today of the promised store credit? The value of the store credit today is $
You are purchasing a new TV at Visions Electronics, and the salesperson is trying to convince you to buy a four-year extended warranty. The cost of the warranty to you today will be $259. However, if there is no claim against the warranty, you will get a store credit for $259 to spend four years from now. Assume you won't have any problems with your TV and you plan on buying more electronics at Visions in four years (so you would be certain to use the store credit). Also assume the interest rate is 3% per year. a. What is the value to you today of the promised store credit? b. Given your answer to a, what is the net cost of the extended warranty? a. What is the value to you today of the promised store credit? The value of the store credit today is $
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
Related questions
Question
2
Transcribed Image Text:You are purchasing a new TV at Visions Electronics, and the salesperson is trying to convince you to buy a four-year
extended warranty. The cost of the warranty to you today will be $259. However, if there is no claim against the warranty,
you will get a store credit for $259 to spend four years from now. Assume you won't have any problems with your TV and
you plan on buying more electronics at Visions in four years (so you would be certain to use the store credit). Also
assume the interest rate is 3% per year.
a. What is the value to you today of the promised store credit?
b. Given your answer to a, what is the net cost of the extended warranty?
a. What is the value to you today of the promised store credit?
The value of the store credit today is $.
(Round to the nearest cent.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education