1If an individual can save $1,500 annually, how much will have been accumulated

Question

1If an individual can save $1,500 annually, how much will have been accumulated
after 4 years if the funds earn 7 percent?

2.You are buying a $35,000 car with 20% down, no sales tax, and by financing the
balance for 5 years. If interest is 4.5% and monthly payment is $550, is this a
good deal or bad deal?

Explanation / Answer

1> Future Value presuming deposit made at the beginning of each year =FV=1500*(1.07^4)+1500*(1.07^3)+1500*(1.07^2)+1500*(1.07^1) 7126.11 2>Cost of the Car 35000 Down Payment 20%=0.2*35000 7000 Loan Availed 28000 Let the annuity amount be A per month PV of annuity 550 for (5x12) instalments @4.5% interest per annum Monthly Interest=4.5/12 0.375% Interest Factor=F=1.00375^(12*5) 1.252 PV of annuity =A*(F-1)/F*i PV of annuity=550*(1.252-1)/(1.252*0.00375) 29520.77 It is a bad deal as he is paying more than the loan he is taking (29520.77>28000)

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