You have just won the annual Fulbright Finance competition of $800.00. Your expe

Question

You have just won the annual Fulbright Finance competition of $800.00. Your expertise in fiannce immediatly beckons you to figure: 1. FV of winnings over 5 years at 8% interest rate. 2. You find a lower rate, but it is an Annuity Due over 5 years at 6%. Is this a better deal? 3. Heck, you desire it, you decide to put the money down on a new car costing $35,000. You were able to get the interest rate at 4% because of your credit rating. You finance it for 7 seven years; what is the annual payment on the car? Please show your amortization schedule. What is the monthly payment?

Explanation / Answer

Ans1 Calculation of fair value Year Cash Flow (in $) PVAF 8% Value 1 800 0.9259 740.7407 2 800 0.8573 685.8711 3 800 0.7938 635.0658 4 800 0.7350 588.0239 5 800 0.6806 544.4666 Total 3194.1680 Ans 2 If rate =6% Year Cash Flow (in $) PVAF 6% Value 1 800 0.9434 754.7170 2 800 0.8900 711.9972 3 800 0.8396 671.6954 4 800 0.7921 633.6749 5 800 0.7473 597.8065 Total 3369.8910 yes this deal is better then earlier Ans 3 Calculation of annual payment for car Annual payment= $35,000/ PVAF 4%, 7yr $35000/6.0021 $5831.29

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