Mike is hoping to purchase a nice new car for $35,000 in two years. At that time
ID: 1170296 • Letter: M
Question
Mike is hoping to purchase a nice new car for $35,000 in two years. At that time he plans on taking out a 5-year loan with monthly payments and an APR of 4.5%. Based on his estimated earnings, Puddy thinks he will be able to afford monthly payments of $575 per month. Mike plans on saving for the difference between the cost of the car and the amount he'll borrow by making monthly deposits over the next two years in a bank account that yields an annual rate of 3%.
a. What is the amount of the down payment Mike will need to purchase this car he wants to buy in two years?
b. What is the amount of the monthly savings deposits Mike will need to make in order to save up the amount he needs for the down payment?
7. Mike plans to retire in 25 years and plans to withdraw end of the year payments in the amount of $90,000 from
his retirement account to allow him to enjoy the same standard of living he has enjoyed in life thus far. Mike
financial planner has advised him that he should estimate his retirement will last 30 years and use a conservative
8% annual rate of return in his financial planning. Mike does already have $50,000 already saved up for
retirement, how much more does Mike need to save each year to reach his retirement goal?
*Round answers to the nearest dollar.
Explanation / Answer
The present value of $575 monthly payments (T=2) = 575 (1 - (1 + r)-n) / r = 30842.64 (r=0.045/12, n=60months)
therefore downpayment = 35000-30842.64=4157.35 is amount of down payment
now calculating Future value of anulity payments => 4157.35= X[(1 + r)n-1]/r (r=0.03/12,n=24months)
X = $168.29 monthly savings to pay downpayment
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