Please assist with work on numbers 4 through 9 thank you in advance!!! PART Inte
ID: 2619543 • Letter: P
Question
Please assist with work on numbers 4 through 9 thank you in advance!!!
PART Integrative Case This case draus on material from Chapters 3-7. Adam Rust looked at his mechanic and sighed. The mechanic had just pronounced a death sentence on his road-weary car. The car had served him well-at a cost of $500 it had laste through four years of college with minimal repairs. Now, he desperately needs wheels. He has just graduated, and has a good job at a decent starting salary. He hopes to purchae his first new car. The car dealer seems very optimistic about his ability to afford the a payments, another first for him The car Adam is considering is $35,000. The dealer has given him three payment options: 1. Zero percent financing. Make a $4000 down payment from his savings and finan noug the remainder with a 0% APR loan for 48 months. Adam has more than e cash for the down payment, thanks to generous graduation gifts. 2. Rebate with no money doun. Receive a $4000 rebate, which he would use for down payment (and leave his savings intact), and finance the rest with a standar 48-month loan, with an 8% APR. He likes this option, as he could think of many other uses for the $4000 3. Pay cash. Get the $4000 rebate and pay the rest with cash. While Adam doesn have $35,000, he wants to evaluate this option. His parents always paid cash win they bought a family car; Adam wonders if this really was a good idea. for Adam's fellow graduate, Jenna Hawthorne, was lucky. Her parents gave her a car graduation. Okay, it was a little Hyundai, and definitely not her dream car, but it was viceable, and Jenna didn't have to worry about buying a new car. In fact, Jenna has trying to decide how much of her new salary she could save. Adam knows that witha h car payment, saving for retirement would be very low on his priority list. Jenna believes 65, a e is looking at has earned an aver could easily set aside $3000 of her $45,000 salary. She is considering putting her a stock fund. She just turned 22 and has a long way to go until retirement at sav nsiders this risk level reasonable. The fund sh of 9% over the past 15 years and could be expected to continue earning this amour et average. While she has no current retirement savings, five years ago Jenna's gra gave her a new 30-year U.S. Treasury bond with a $10,000 face value t. dparents Jenna wants to know her retirement income if she both (1) sells her Treasury its current market value and invests the proceeds in the stock fund and (2) saves an tional $3000 at the end of each year in the stock fund from now until she turns she retires, Jenna wants those savings to last for 25 years until she is 90. 65. Both Adam and Jenna need to determine their best optionsExplanation / Answer
Answer 4) In the such situation , Adam has to go for option 2 , pay no money a down payment and pay amount 48 months standard loan a 8 % APR .
For option 2 , As the credit card Loan APR = 18% , CAR loan APR = 8% . Benefit in car loan = 18 - 8 = 10% APR .
If Adam use $4000 in repayment of credit card laon , net interest saving in 48 months = $4000 *10% * 4 = $1600.
Total saving = $4000+ $ 1600 = $ 5600 .
Answer 5) Face value = $ 10,000 , Time =30 years , Coupon rate = 6.5% and current yield to maturity= 5.443% (APR with semi annual compounding) , time to maturity = 30 -5 = 25 years .
Market value = Pv( of all cash inflow) + Pv ( maturity value) = $ 11434.01
As calculated below
Answer 6)
Retirement Corpus = FV of sales value of bond at 9% per year + FV of yearly investment of $3000 untill 65 years at 9% APR
= FV ( 11434.01, 9% , 43) + AV( 3000 , 9%, 43) = $465091.0467 + $1444564.324 = $1909656.371 .
Now , The accumulated capital will be used to pay monthly annuity till age of 90 years , with growth rate of 9%
by using formula :PMT(9/12,300,-1909656.371 ,0,0 )
Answer 7)
This is case of growing annuity , and growing saving as well .
First Calculation of Retirement corpus with growth of 4% in saving below.
Retirement Corpus = $2788318
Now calculating the annual annuity for 25 year with inflation 0f 3% and growth rate of 9% . by using following formula
PV = Pmt x (1 - (1 + g)n x (1 + i)-n ) / (i - g) , I =9% and g = inflation = 3%
PV per year = $ 2176581.241.
Answer 8 )
She should think about the risk associated with stock investment and diversifiaction of her portfolio . It is always adviced to investment in multiple assets class rather than a specific type of investment.
Answer 9) The dividend of current year (D0) = $1.76 , growth rate (g) = 4% , Current market price(CMP) = $ 55.55., , Dividend in next year (D1) = D0(1+g) = 1.8304 ,
Expected return =D1 / CMP = 1.8304 /55.55 = 3.29504% = 3.29%
series 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 60 Coupon Cash Flow) 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 325 10000 PV( Cash Flow) 316.3887 308.0055 299.8445 291.8997 284.1655 276.6361 269.3063 262.1707 255.2241 248.4616 241.8783 235.4694 229.2303 223.1565 217.2437 211.4876 205.8839 200.4287 195.1181 189.9482 184.9153 180.0157 175.2459 170.6026 166.0822 161.6816 157.3977 153.2272 149.1673 145.2149 141.3672 137.6215 133.975 130.4252 126.9694 123.6052 120.3301 117.1418 114.0379 111.0164 108.0748 105.2112 102.4235 99.70968 97.06774 94.4958 91.99201 89.55456 87.18169 84.8717 2611.437 11434.01