Investment Decision. Judy has just received $13,350 as an inheritance from her u

Question

Investment Decision. Judy has just received $13,350 as an inheritance from her uncle and is considering ways to use the money. Judy's car is one year old, and her monthly payment is $331. She owes 48 more payments. The amount to pay off the loan is $1329 Judy wil save $2 in ere tif she pay off her car,loa no Judy is also considering investing the $13,350 in a certificate of deposit CD). She is guaranteed a return of 5% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return? (Note: lgnore any tax effect.) The amount of interest Judy would earn from the CD is $ (Round to the nearest dollar.) Judy should |. (Select from the drop-down menu.)

Explanation / Answer

Amount of interest = PV x (1 + r)^n - PV = 13,350 x (1 + 5%)^4 - 13,350 = $2,877

As Judy earns more from investing in CD then saving from the loan, she should invest in CD.

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