1, Assume you plan to save to take a tour of Europe in 3 years. The current price of the tour,

all expenses included, is $6,000.

a. What is the expected purchase price in 3 years if the expected rate of inflation is 2.5% per year?

Round the expected price up to the nearest one hundred.

The expected price of the tour in 3 years is $__________.

b. How much must be deposited today in an account that earns 4% annual interest

after taxes, compounded quarterly?

$__________ must be deposited today.

c. How much must be saved each quarter in an account that earns 4% annual interest

after taxes, compounded quarterly?

$__________ must be deposited each quarter.

2, Suppose the tour company allows you to use an installment loan to lock in today's price of $6,000 if you start making payments on the loan today. Assume your first payment is one month in the future.

a. What is the monthly payment on the loan if the annual interest rate on the loan is

8.4%, interest is compounded monthly, and the payback period is 3 years?

The monthly payment on the loan is $__________.

b. What is the total amount to the tour company, including interest on the loan?

The total amount paid is $__________.

c. How much will you pay in interest on the loan?

$__________ will be paid in interest on the loan.

3, Suppose you decide to take the tour now and use a 15% credit card for the purchase. Use

the calculators at bankrate.com to answer the following questions.

a. How many months will it take to pay off the $6,000 for the tour if you make a

fixed payment of 4% of the original balance?

It will take __________ months.

b. How much will you pay in interest if you make a fixed payment?

$__________ will be paid in interest on the loan.

c. How many months will it take to pay off the

$6,000 tour if you make the minimum

payment, assuming the minimum is 4% of the outstanding balance?

It will take __________ months.

d. How much will you pay in interest if you make only the minimum payment?

$__________ will be paid in interest.