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PersonalFinance

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Saved by PBworks
on May 12, 2006 at 4:01:53 pm
 

Learning Objectives

 

Problem 1 of 3

 

Emily wishes to obtain a new car with a total price of $18 752.

 

Option 1: Purchase the car now with a down payment of $4000 and a loan at 2% per annum compounded monthly and paid monthly for 3 years.

Option 2: Lease the car with no down payment and pay $325 per month for 3 years and then purchase the car outright at its lease-end value of $8000.

 

(a) What is the monthly payment for Option 1?

 

(b) What is the total paid in Option 2?

 

(c) Which option will cost Emily the least amount and by how much?

 

 

Solution

 

 

A= P(1+i)^t

 

--p= principal. amount to begin with.

--A= amount paid at the end.

--t= time in years

 

Option 1 a) =18 752(1+.02)^3

=18 752(1.02)^3

=$56821.15*$4000.00

=$19899.77+$4000.00

=$23899.77

option one montly pay=$19899.77/36

=$552.77

 

 

 

Option 2 b) 325*36=$11700.00+8000 12*3=36

=$19700.00

 

          • Option 2 will cost Emily the least amount. by: $23899.77-19700.00

=$4199.77

 

 

Problem 2 of 3

 

The Smith family can purchase a house valued at $100 000.00 with a down payment of $10 000.00, or they could rent a similar house.

 

(a) The monthly payment for a mortgage, amortized over 15 years at an interest rate of 6.50% compounded monthly, is $784.00. If the Smiths purchase the house, calculate the total amount paid, including the down payment, by the end of the first 5 years.

 

(b) Real estate appreciates at a rate of 3% per year. Determine the equity in the purchased house after 5 years. Show all work.

 

(c) Given that it is more expensive to rent, give two reasons why the Smiths would choose to rent.

 

Solution

 

 

Problem 3 of 3

 

Bonnie has recently inherited $10 000.00 and has decided to invest it for her retirement. She will invest in a fixed income deposit paying 6% per annum, compounded annually. By investing in an RRSP she will receive a tax rebate of 39% of her investment. The first year, she invests %10 000.000. At the begining of the second year ONLY she adds the tax rebate of $3 900.00 to her initial investment. She makes no other additional payments, allowing her investment to grow by compounding the interest.

 

(a) What is her closing balance after 10 years?

 

(b) Bonnie withdraws all the money from her RRSP after 10 years. The amount is taxed at a rate of 22%. How much income tax did she have to pay on her investment?

 

(c) How much money remains after all the taxes have been paid?

 

 

Solution

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