Question

Last 4 digits of CUNYFirst ID BUS 121 - - Name Time Value of Money: Problem Set la Tips: • For now, ignore "payment" and "mode" in the TVM calculator app. Problems: 1. Shirin needs to borrow $3.000 and is considering her options. Her bank is offering to lend her the money for 2 van after which she will need to make a single payment to the bank in the amount of $3,500. Her cousin offered to lend her money, too - for 4 years, and the amount Shirin will need to pay back in that case is $3,700. If Shirin's goal is to minimize the cost of her borrowing, which option should she prefer? 2. Leroy's son was just born, and he wants to make sure he puts away enough money for his son's college education. Leroy is thinking a bachelor's degree will cost $170,000, and he wants to have all of that money available when his son turns 18. Leroy opened an account for this purpose and funded it with $55,000. The investments in the account are expected to return 7% a year. a. Assuming no further deposits, will Leroy reach his goal, or will he fall short? b. Instead of $55,000, how much money does he need to deposit into the account now, in order to reach his goal exactly? Annual rate Periods/ years Future value FV Present value PV

Answer 1

2(a)

Years required if saved under mattress -

$50000/$1200

= 41.67 years approx

2(b) it will take short amount of time if money is saved in an account which offers some interest because the amount of interest can be reinvested with the bank to save for making payment

3(a) janai has 44 years to save 1 million i.e. 1000000&"

Amount to save per year. = 1000000/44

=22727 approx

3(b)she will have to save less because the interest so earned can be reinvested and added to the savings

3(d)janai will have to save more of the amount needed if she decides to wait some more years after her college.

Problem set 1a

1 option-1. Borrow from bank

amount paid - 3500

Years- 3

Pv- 3000.

Rate= 3500/(3000*3)

= 0.38

Option-2 borrow from cousin

Fv- 3700

Pv- 3000

Time 4

Rate = 3700/(3000*4)

= 0.30

Answer - option 2 should be preferred as it has lower rate.

She should borrow money from her cousin