Question

You want to buy a car which will cost you $10,000. You do not have sufficient...

You want to buy a car which will cost you $10,000. You do not have sufficient funds to purchase the car. You do not expect the price of the car to change in the foreseeable future. You can either save money or borrow money to buy the car.

  • Plan 1: You decide to open a bank account and start saving money. You will purchase the car when you have sufficient savings. The nominal interest rate for the bank account is 6% per annum compounded monthly.

a) You will make regular deposits in your bank account at the start of each month for the next 2.5 years. Calculate the minimum required monthly savings to be deposited into the bank such that you would have sufficient funds to purchase the car in 2.5 years. (1 mark)

b) You will make regular deposits in your bank account at the start of each week for the next 2.5 years. Calculate the minimum required weekly savings to be deposited into the bank such that you would have sufficient funds to purchase the car in 2.5 years.

c) You will make regular deposits of $2,000 at the end of each year. Calculate how long will it take for you to have sufficient funds to purchase the car. (1 mark)

Homework Answers

Answer #1

a)Future value of the car (FV )= $ 10000

Rate of interest monthly (rate) = 6/12 = 0.5%

Time period (nper) = 2.5 *12 = 30 months

Present value (PV) =0

We have to find the payment required (PMT ) for each month

Using the PMT function in excel ,

=PMT( rate, nper, PV,- FV)

=PMT( 0.5% , 30, 0, -10000)

= $ 309.79 (Answer)


b) Considering that there are 52 weeks in a year

Rate of interest weekly (rate ) = 6%/52 = 0.1154%

Time (nper) = 52*2.5 = 130 weeks

Using the PMT function in excel ,

=PMT( rate, nper, PV,- FV)

=PMT( 0.1154% , 130, 0, -10000)

= $ 71.34 (Answer)

c) Given ,

PMT = $ 2000

PV= 0

FV= 10000

rate = 6%

We need to find nper,

=nper(rate,pmt,pv,fv)

=nper(6%,-2000,0,10000)

=4.5 years (answer)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You want to buy a car which will cost you $10,000. You do not have sufficient...
You want to buy a car which will cost you $10,000. You do not have sufficient funds to purchase the car. You do not expect the price of the car to change in the foreseeable future. You can either save money or borrow money to buy the car. Plan 1: You decide to open a bank account and start saving money. You will purchase the car when you have sufficient savings. The nominal interest rate for the bank account is...
You want to start saving for a new car and have decided to put $90 per...
You want to start saving for a new car and have decided to put $90 per month at the beginning of each month into an account which earns 6% compounded monthly. You would like to be able to buy a car for $25,000. (a) How many deposits will you have to make to reach your $25,000 goal? (b) How many years will that be? Please indicate what you entered into your calculator to solve these problems.
4. You want to buy a new car in 3 years which will cost $42,000. You...
4. You want to buy a new car in 3 years which will cost $42,000. You plan to get a 5-year car loan at a 6% interest rate but don’t want your monthly payments to be over $300. You plan to save the rest needed by making monthly deposits into the bank, earning 7.5% on your money. How much do you need to save monthly over the next 3 years to reach your goal? 6. You are buying a new...
You want to save $59,400 in the next 8 years to buy a car. The savings...
You want to save $59,400 in the next 8 years to buy a car. The savings account you are thinking about offers 4.40% annually. You also plan to increase your annual deposits by 2.50% each year. What should be your deposit at the end of the first year? a. $6,945 b. $7,023 c. $5,216 d. $6,355 e. $5,852
You plan to buy the house of your dreams in 17 years. You have estimated that...
You plan to buy the house of your dreams in 17 years. You have estimated that the price of the house will be $88,158 at taht time. You are able to make equal deposits every month into a savings account at an annual rate of 3.33 percent, compounded monthly. How much money should you place in this savings account every month in order to accumulate the required amount to buy the house of your dreams? Round the answer to two...
You want to buy a car, and a local bank will lend you $10,000. The loan...
You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 3 years (36 months), and the nominal interest rate would be 15%, with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%?
Abdullah wants to buy a car in 6 years. His dream car costs AED 300,000 today...
Abdullah wants to buy a car in 6 years. His dream car costs AED 300,000 today and car prices are expected to increase at a rate of 15% per year for the next 6 years. Calculate the amount that he needs to save on a monthly basis to buy his dream car in 5 years, if he can earn a 12% interest compounded monthly on his savings account.
You want to buy a car that’s currently priced at $25,795. The price of the car...
You want to buy a car that’s currently priced at $25,795. The price of the car in one year will be $23,610 since it will be last year’s model. You currently don’t have anything in your bank account. Consequently, if you buy the car today you will borrow $25,795 from your parents who will charge you 3.76% APR compounded monthly. You will repay the entire loan balance in one year if you decide to buy the car today. How much...
After deciding to buy a new car, you can either lease the car or purchase it...
After deciding to buy a new car, you can either lease the car or purchase it on a two-year loan. The car you wish to buy costs $32,000. The dealer has a special leasing arrangement where you pay $93 today and $493 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 7 percent. You believe you will be able to...
You want to buy a car, and a local bank will lend you $10,000. The loan...
You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places.