Assignment Two
Answer the question below. It is important that you show your work. Either type the formula used or your inputs (PN, N, etc.)
1. You just received a credit card offer in the mail. The credit card has an APR of 22.99%, with the interest being calculated and charged on a monthly basis. What is the APY on this credit card? 5 points
2. Say that your money actually could grow as fast as the rabbit population in Australia grew, which is approximately equal to an APY of 38%. Assuming that you found a bank that would pay 38% APY and you deposited $100 into your account, how much money would you have in your account after 1 year? After 2 years? After 5, 7, and 10 years? 5 points
3. You’d like to purchase a new car when you graduate and start working. The car that you would really like costs $35,000. You’ve checked with the bank and based on your income, you would qualify for a car loan with an annual interest rate of 5.9% with a 3-year repayment period. You now realize that you’re not able to afford this car payment each month and still pay your other monthly expenses. The bank offers a 5-year car loan with the same interest rate. If you were to choose the 5-year car loan instead of the 3-year car loan, how much lower would your monthly payment be? To answer this question, conduct an internet search and find at least two online TVM calculators. Compare your answers from the two calculators and reconciled any differences. Are the answers close or very different to your own calculation? (Please provide your calculation) 5 points
4. Your friend Beth just graduated and has two job offers that she is considering. Both job offers pay the same, but Job A contributes $2,000 annually to Beth’s retirement plan while Job B does not offer a retirement plan at all. Assuming that Beth will be at her first job for 5 years and that she will earn 8% annually on her retirement savings plan, how much will Beth have in her retirement plan at Job A? 5 points
5. After getting married, Tamara decided that she and her husband needed to start doing serious retirement planning. She determined that they will need $1,000,000 in 25 years to live a comfortable life. If Tamara and her husband have $100,000 currently saved, what rate of return must they earn, on an annual basis, to meet their goal? (Hint: When doing a problem that has a PV and a FV value, one must be entered as a negative to represent a cash outflow. If one is not entered as a negative you will get an error. So, when solving for N or I, in most cases, you will have to make PV or PMT a negative value. See calculator example on page 2-26). 5 points
6.Your neighbor would like some help getting his finances in order. He has asked that you review the following list of his assets and liabilities: 25 points
· Savings Account: $1,000
· 6-month Certificate of Deposit: $200
· Car: $3,500
· Baseball Card Collection: $75
· Clothes: $450
· Furniture: $600
· Credit Card Bills: $375
· Money Owed to Friend: $100
· Car Loan: $1,000
a) What is your neighbor’s net worth?
b) Which asset is considered a monetary asset on the balance sheet?
c) What is the total amount owed for current debts/liabilities?
d) What is his current ratio?
e) What is his debt ratio?
f) Interpret the current and debt ratio calculations.