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Practice Assignment 2

Bridgette wants to buy a $200 karaoke machine from a savings account with $700 that earns 3.5% interest. In 11 years, buying the machine now will make the account worth $292 less than leaving it untouched. Joe has $18,000 in investments earning 4.1% and wants to take out a $18,000 loan at 3.4% over 4 years to buy a $18,000 car. The loan payment includes principal and interest. Joe will have $562.86 left over after making the balloon payment. Ralph must replace his roof, which will cost $17,000 now or $28,000 in 4 years. The break-even

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292 views2 pages

Practice Assignment 2

Bridgette wants to buy a $200 karaoke machine from a savings account with $700 that earns 3.5% interest. In 11 years, buying the machine now will make the account worth $292 less than leaving it untouched. Joe has $18,000 in investments earning 4.1% and wants to take out a $18,000 loan at 3.4% over 4 years to buy a $18,000 car. The loan payment includes principal and interest. Joe will have $562.86 left over after making the balloon payment. Ralph must replace his roof, which will cost $17,000 now or $28,000 in 4 years. The break-even

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Santiago Bohner
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Practice Assignment 2

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Practice Assignment 2
12.0/15.0 puntos (no calificable)
Please read all questions and instructions carefully. Note that you only need to
enter answers in terms of numbers and without any symbols (including $, %,
commas, etc.). Enter all monetary answers to the nearest dollar (no decimal/cents)
and all interest rates to the nearest on hundredth of a percent (two decimal places).
Read the syllabus for examples. The points for each question are listed in
parentheses at the start of the question, and the total points for the entire
assignment add up to 15.

1. (3 points) Bridgette's grandparents opened a savings account for her and placed $700 in
the account. The account pays 3.5% interest. Bridgette wants to be a singer and she has her
heart set on a new karaoke machine. The machine costs $200. How much less will the
account be worth in 11 years if she buys the karaoke machine now versus leaving the
account untouched? (Enter just the number in dollars without the $ sign or a comma and
round off decimals to the closest integer, i.e., rounding $30.49 down to $30 and rounding
292
$30.50 up to $31.)   correcto 
[289.07, 294.91]
292 
Difference in Future Values or future value of a difference?
2. (3 points) Joe is getting ready to buy a car. He has $18,000 in investments earning 4.1%
annually. The car also costs $18,000. If he doesn't pay cash for the car, Joe can get a loan at
3.4% interest for 4 years. The loan is structured so that Joe pays one balloon payment at the
end of 4 years. The balloon payment includes the principal plus all interest accrued over 4
years. If Joe takes the loan will he have enough money available from his investments to
make the balloon payment? How much will he be short/have to spare?
No; $509.32
Yes; $509.32 incorrecto
No; $562.86
Yes; $562.86 correcto
Respuesta
Incorrecto:
You made the right decision but the incremental future value is calculated
incorrectly.
You will learn how to properly calculate the difference in two future values.
3. (3 points) Ralph knows that he is going to have to replace his roof soon. If he has the
roof replaced now, it will cost $17,000. He could wait 4 years, but it will then cost him
$28,000. At what rate will these options cost the same? This is also known as the break-
even point. (Allow two decimals in the percentage but do not enter the % sign.)
13.29
  correcto 
[13.16, 13.42]
13.29 
Break-even point calculation.
4. (3 points) Jessica is in the market for a new car. She has narrowed her search down to 2
models. Model A costs $24,000 and Model B costs $18,000. With both cars she plans to
pay cash and own them for 4 years before trading in for a new car. Her research indicates
that the trade in value for Model A after 4 years is 59% of the initial purchase price, while
the trade in value for Model B is 31%. Jessica has no emotional attachment to either model
and wants to make a strictly financial decision. The interest rate is 6%. For simplicity
assume that operating and maintenance costs for the models are identical every year. Which
model is the better decision and how much "cheaper" is it than the alternative?
Model A; $6,000.00
Model A; $796.16 correcto
Model B; $796.16
Model B; $6,000.00
Respuesta
Correcto:
You got it.
You can separately calculate the present value of net costs for the two
models, or just tally the incremental net benefit of owning one model in lieu
of the other.
5. (3 points) College tuition has been rising at a rate of 5% per year. Currently the average
tuition of a state college is $10,900 per year. Andrea's son Trevor will begin college in 11
years. Andrea's portfolio is making 2% annually. How much does Andrea need to have set
aside today/now to pay for 4 years of college for Trevor? (Note: Tuition will continue to
change annually and Andrea's portfolio balance will continue to accrue interest while
Trevor is in school. Also, tuition is due at the beginning of each year.)
$62,455.20
$62,672.73 correcto
$61,443.86
$43,600.00

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