Credit Card and New Sports Car
HW SET 0
1. Deceptive advertising? Some business has been advertising like this “ Come try our product. If you do, we’ll give you $100 just for coming by!” If you read the fine print, what you find out is that they will give you a savings certificate that will pay you $100 in 25 years. If the going interest rate on such certificates is 10 % per year annually compounded, how much are they really giving you today?
Ans. $9.23
2. Art as an investment. 1995 Christie’s auctioned the William de Kooning painting Untitled. The highest bid of $1.95 million was rejected by the owner, who had purchased the painting at the height of the art market in 1989 for $3.52 million. Had the seller accepted the bid, what would his annual rate of return have been?
Ans. -9.37%
3. Sports Car. After carefully going over your budget, you have determined you can afford to pay $678 per month towards a new sports car. You call up your local bank and find out that the going rate is 1% per month for 44 months. How much can you borrow?
Ans. $24,000
4. Depending on the issuer, a typical credit card agreement quotes an interest rate of 18% APR. Monthly payments are required. If your balance now stands at $1,000 how much will you need to pay it off in a year without making any payments in between?
Ans. $1,195.6
5. you recently finished your MBA at the Darnit School. Naturally, you must purchase a new BMW immediately. The car costs $21,000. The bank quotes an interest rate of 15% APR for a 72-month loan (compounded obviously monthly) with a 10% down payment. You plan on trading the car in for a new one in two years. What will your monthly payment be? What is the effective interest on the loan? What will the loan balance be when you trade the car in?
Ans. About $400/month, 16.08%, $14,360 (the 48 payments left…)
1. Deceptive advertising? Some business has been advertising like this “ Come try our product. If you do, we’ll give you $100 just for coming by!” If you read the fine print, what you find out is that they will give you a savings certificate that will pay you $100 in 25 years. If the going interest rate on such certificates is 10 % per year annually compounded, how much are they really giving you today?
Ans. $9.23
2. Art as an investment. 1995 Christie’s auctioned the William de Kooning painting Untitled. The highest bid of $1.95 million was rejected by the owner, who had purchased the painting at the height of the art market in 1989 for $3.52 million. Had the seller accepted the bid, what would his annual rate of return have been?
Ans. -9.37%
3. Sports Car. After carefully going over your budget, you have determined you can afford to pay $678 per month towards a new sports car. You call up your local bank and find out that the going rate is 1% per month for 44 months. How much can you borrow?
Ans. $24,000
4. Depending on the issuer, a typical credit card agreement quotes an interest rate of 18% APR. Monthly payments are required. If your balance now stands at $1,000 how much will you need to pay it off in a year without making any payments in between?
Ans. $1,195.6
5. you recently finished your MBA at the Darnit School. Naturally, you must purchase a new BMW immediately. The car costs $21,000. The bank quotes an interest rate of 15% APR for a 72-month loan (compounded obviously monthly) with a 10% down payment. You plan on trading the car in for a new one in two years. What will your monthly payment be? What is the effective interest on the loan? What will the loan balance be when you trade the car in?
Ans. About $400/month, 16.08%, $14,360 (the 48 payments left…)