You are saving to buy a new car in two years. You currently have $5000 in an account that pays 4% annual interest compounded quarterly. You plan on adding to that account with quarterly deposits of $500 each over the next two years. Then you will take the balance of that account to use as a down payment on your new car. You expect the car you want will cost $32,000 and that you will be able to get a loan from the dealer at a 12% annual rate for a five-year term. If you wanted to pay cash for the car when you buy it in two years, how much would you need to have in an account today (assuming you do not make any additional deposits) if the account pays 8% compounded annually?
You are saving to buy a new car in two years. You currently have $5000 in an account that pays 4% annual interest compounded quarterly. You plan on adding to that account with quarterly deposits of $500 each over the next two years. Then you will take the balance of that account to use as a down payment on your new car. You expect the car you want will cost $32,000 and that you will be able to get a loan from the dealer at a 12% annual rate for a five-year term. If you wanted to pay cash for the car when you buy it in two years, how much would you need to have in an account today (assuming you do not make any additional deposits) if the account pays 8% compounded annually?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 3PB: Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate...
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You are saving to buy a new car in two years. You currently have $5000 in an account that pays 4% annual interest compounded quarterly. You plan on adding to that account with quarterly deposits of $500 each over the next two years. Then you will take the balance of that account to use as a down payment on your new car. You expect the car you want will cost $32,000 and that you will be able to get a loan from the dealer at a 12% annual rate for a five-year term.
If you wanted to pay cash for the car when you buy it in two years, how much would you need to have in an account today (assuming you do not make any additional deposits) if the account pays 8% compounded annually?
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