Questions & AnswersFinance

Alice has $5 000 now. She wants to save $25 000 to buy her first...

Question
Answered step-by-step
Asked by KidTank2437 on coursehero.com

Alice has $5 000 now. She wants to save $25 000 to buy her first...

Alice has $5 000 now. She wants to save $25 000 to buy her first car. She decides to put that $5 000 in an investment fund that pays an interest rate of 10% per annum (per year), compounding annually.


Required:

a) How long does Alice need to wait until she has saved $25 000? (2 marks)

b) If Alice wishes to have that $25 000 in five (5) years, how much does she need to put into the investment now with the same interest rate of 10%? (2 marks)

c) Assume that Alice was offered an alternative investment, which requires an initial investment of $6 000 for seven (7) years. Calculate the amount of money that Alice would accumulate after seven (7) years, if the rate of return is 12%, compounding quarterly. (2 marks)

d) Assume that Alice was offered two (2) other alternative investments in the securities market: i. Option A pays an interest rate of 10% p.a. (per year), compounding semi-annually. ii. Option B pays an interest rate of 9.87%, compounding monthly. Which option (A or B) should Alice choose? (2 marks)

e) Assume that Alice has achieved her goal of $25 000 as a deposit and now she wants to purchase a car which costs $45 000. Her plan is to pay $25 000 in cash and finance the balance over three (3) years at an interest rate of 3.5%. What will be her monthly payment? (2 marks)

f) At the end of this year, Alice will receive a fixed income of $10,000 each year forever. If the required rate of return is 14%, what is the present value of this income flow? (1 mark)

Answer & Explanation

Solved by verified expert
Answered by ba0690 on coursehero.com
um dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus effici
CliffsNotes Logo

Unlock access to this and over
10,000 step-by-step explanations

Unlock Explanation

Have an account? Log In

Step-by-step explanation

um dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar t
1 attachment
Subscribe to unlock attachment
PNG

Get unstuck with a CliffsNotes subscription

Example CliffsNotes Question and Answer
Unlock every step-by-step explanation, download literature note PDFs, plus more.Get Access