Question

a. You plan on going on a 8 month vacation 8 months from now. You can pay $3,904 per month during the vacation, or you can pay $24,441 today. If you pay today, how much does it save (or cost) you in present value term if your investments earn 4.39% APR (compounded monthly)?

If it costs you more to pay today, state your answer with a negative sign (eg., -2000).

b. You've just been hired at a new job. You expect to work there for 4 years. Your boss offers you a hiring bonus of either $2,739 today, or an additional $22 per month, starting next month, on your salary.

If your investments earn 2.75% APR (compounded monthly), how much would you gain or lose by taking the cash-bonus today?

c.

You purchase an antique car today for $52,394

You expect the price of the car to rise by 4% per year for the next 6 years.

What do you expect the price of the car to be in year 6?

If you would lose money, indicate your answer with a negative number.

Answer 1

a)