1 of 2 future. Ifhis cash earns interest at a 5.4% APR (based on monthly compounding) at the Part 2 Integrative Case bank, what would be his best purchase option for the car? 3. In fact, Adam doesn't have sufficient cash to cover all his debts includnghis (substantial) student loans. The loans have a 10% APR, and any money spent on the car could not be used to pay doan the loans. What is the best option for Adam noa? (Hint Note that having an extra $1 today saves Adamroughly $1.10next year because he can pay doun the student This case draws on material from Chapters 3-7 Adam Rust looked at his and suhed. The mechanic had a death sentence on his road-weary car. The car had served him well-at a cost of s500 it had lasted through fou with minimal repairs. Now, be desperately needs wheels. He has ust eraduated loans. So, 10% is Adams tme value of money in this case.) and has a goodjob at a decent starting salary.He hopes topurchase his first new car The car dealer seems very optimistic about his ability to afford the car payments, another first for him. The car Adam is considering is $35,000. The dealer has giren him three payment options instead Adam has a lot ofcedit card debt, with an 18% APR. and he doubts he off this debt completely before be pays off the car. What is Adam's beet option 1. Zero percet financing. Make a $4000 doun payment from his savings and inance the remainder with a0%APR loan for 48 months. Adam has more than enough cash for the Jenna's Treasury bond has a coupon interest rate of 65%, paid semiannually cument Treasury bonds with the same maturity date have a yield to maturity of 5.4435% (expressed as an APR with Demuannual compounding)-If she hasjut received down payment, thanks to generous graduation 2. Rebate with no moneydown. Receve a $4000 rebate, which he would use for the doun the bond's 10th coupon, for how much can Jena sell her treasury bond? (and leave his savings intact), and finance the reat with a standard 48-morth 6. Suppoe Jenna sells the bond, reinvests the proceeds, and then saves as she planned. If ndeed, Jenna earns a 9% annual return on her savings, how much could she withdraw cach year in retiremen (Assume she begans withdrawing the money from the account in equal with an 8% APR. He likes this option, as be could think ofmany other uses for the 4000. 3. Pay cash. Get the $4000 rebate and pay the reat with caeh While Adam doeen't have amounts at the end of each vear once her retirement begins.) Note Let's assume she begins withdrawing the money at age 66 for 25 years (66-90)1 535,000, he wants to eraethis option. His parents always paid cash when they bought a family car, Adam wonders if this really was a good idea. 7. Jerna expects her salary to grow regularly. While there are no guarantees, sbe believes an increase of 4% a year is reasonable. She plans to save $3.000 the first year, and then increase the amount she saves by 4% each ve her salary grows. Unfortunately, pnces will also grow due to inflation. Suppose Jenna assumes there will be 3% inflation every year. In retiement, she will need to increase her withdrawals each year to keep up with Adam's fellow graduate, Jenna Hawthome, was lucky. Her parents gave her a car for graduation. Olkay, it was a litle Hyundai, and definitely not her drean car, but it was serviceable, and Jenna dicn't hare to worry about buying a new car. In fact, Jenna has been trying to decide how mucih of her new salary sbe could save. Adam knows that with a hefy car payment, saving for retirement would be very low on his priority list Jenna believes she could easily set aside $3,000 of her S45,000 salary. She is canai denne putting her in a stock fund Shejut tried 22 and has a long way to go until retirement at aze 65, and she considers this isk level reasonable. The find she is looking at has earned an average ofg% over the past 15 years and could be expected to continne eaming this amount, on average. While she hae no current retirement saving, five years nflation In this case, how much can she withdraw at the end of the first vear of her retirement? What amount does this correspond to in today's dollars? (Hint: Build a in which you track the amount in her retirement accoumt each year) Let's ascume she saves $3,000 at age 22 (now) $3,000 at age 23 (the first year, $3,000"(1+4%) at age 24 (the second year) for being conntent with the pattern of growing ago Jena's grandparents gave her a new 30-year US.Trasury bond with a $10,000 face value anmity on pag 10 of the tetbook Jenna wants to ow her retirement mcome ifshe b th (I) sells her Treasury bond at its current in the stock fund and (2) saves an additional $3000 at the end of each year in the stock fund from now until she turns 65. Note (1)Let's assume she also 8. Should Jenna ell ber Treasury bond and ivest the proceeds in the stocl: fund? Give at market value and invests the least one reason for and against this plan. saves S3,000 at age 22 (year0) plus Treasury bond proceeds. (2) The part of amaity is from 9. At the last minute, Jerma coniders investing in Coca-Cola stock at a price of $55.55 per 23 (year1) to 65 Once she retires,Jenna wants those satvings to last for 25 years until sheis Both Adam and Jerma need to deternmine their best options. Case Questions share instead. The stock just paid an anual dividend of S1.76 and she expects the dividend togrow at 4% annually. If the next dividend is due in one year, what expected return is Coca-Cola stock offerina? 1. What are the cash lows associated with each of Adam's three car financing opticns? 2. Suppove that, similar to his parenta, Adam had pleraty of cash in the bank so that he could easily afford to pay cash for the car without runing into debt now or in the foreseeable 1 of 2 future. Ifhis cash earns interest at a 5.4% APR (based on monthly compounding) at the Part 2 Integrative Case bank, what would be his best purchase option for the car? 3. In fact, Adam doesn't have sufficient cash to cover all his debts includnghis (substantial) student loans. The loans have a 10% APR, and any money spent on the car could not be used to pay doan the loans. What is the best option for Adam noa? (Hint Note that having an extra $1 today saves Adamroughly $1.10next year because he can pay doun the student This case draws on material from Chapters 3-7 Adam Rust looked at his and suhed. The mechanic had a death sentence on his road-weary car. The car had served him well-at a cost of s500 it had lasted through fou with minimal repairs. Now, be desperately needs wheels. He has ust eraduated loans. So, 10% is Adams tme value of money in this case.) and has a goodjob at a decent starting salary.He hopes topurchase his first new car The car dealer seems very optimistic about his ability to afford the car payments, another first for him. The car Adam is considering is $35,000. The dealer has giren him three payment options instead Adam has a lot ofcedit card debt, with an 18% APR. and he doubts he off this debt completely before be pays off the car. What is Adam's beet option 1. Zero percet financing. Make a $4000 doun payment from his savings and inance the remainder with a0%APR loan for 48 months. Adam has more than enough cash for the Jenna's Treasury bond has a coupon interest rate of 65%, paid semiannually cument Treasury bonds with the same maturity date have a yield to maturity of 5.4435% (expressed as an APR with Demuannual compounding)-If she hasjut received down payment, thanks to generous graduation 2. Rebate with no moneydown. Receve a $4000 rebate, which he would use for the doun the bond's 10th coupon, for how much can Jena sell her treasury bond? (and leave his savings intact), and finance the reat with a standard 48-morth 6. Suppoe Jenna sells the bond, reinvests the proceeds, and then saves as she planned. If ndeed, Jenna earns a 9% annual return on her savings, how much could she withdraw cach year in retiremen (Assume she begans withdrawing the money from the account in equal with an 8% APR. He likes this option, as be could think ofmany other uses for the 4000. 3. Pay cash. Get the $4000 rebate and pay the reat with caeh While Adam doeen't have amounts at the end of each vear once her retirement begins.) Note Let's assume she begins withdrawing the money at age 66 for 25 years (66-90)1 535,000, he wants to eraethis option. His parents always paid cash when they bought a family car, Adam wonders if this really was a good idea. 7. Jerna expects her salary to grow regularly. While there are no guarantees, sbe believes an increase of 4% a year is reasonable. She plans to save $3.000 the first year, and then increase the amount she saves by 4% each ve her salary grows. Unfortunately, pnces will also grow due to inflation. Suppose Jenna assumes there will be 3% inflation every year. In retiement, she will need to increase her withdrawals each year to keep up with Adam's fellow graduate, Jenna Hawthome, was lucky. Her parents gave her a car for graduation. Olkay, it was a litle Hyundai, and definitely not her drean car, but it was serviceable, and Jenna dicn't hare to worry about buying a new car. In fact, Jenna has been trying to decide how mucih of her new salary sbe could save. Adam knows that with a hefy car payment, saving for retirement would be very low on his priority list Jenna believes she could easily set aside $3,000 of her S45,000 salary. She is canai denne putting her in a stock fund Shejut tried 22 and has a long way to go until retirement at aze 65, and she considers this isk level reasonable. The find she is looking at has earned an average ofg% over the past 15 years and could be expected to continne eaming this amount, on average. While she hae no current retirement saving, five years nflation In this case, how much can she withdraw at the end of the first vear of her retirement? What amount does this correspond to in today's dollars? (Hint: Build a in which you track the amount in her retirement accoumt each year) Let's ascume she saves $3,000 at age 22 (now) $3,000 at age 23 (the first year, $3,000"(1+4%) at age 24 (the second year) for being conntent with the pattern of growing ago Jena's grandparents gave her a new 30-year US.Trasury bond with a $10,000 face value anmity on pag 10 of the tetbook Jenna wants to ow her retirement mcome ifshe b th (I) sells her Treasury bond at its current in the stock fund and (2) saves an additional $3000 at the end of each year in the stock fund from now until she turns 65. Note (1)Let's assume she also 8. Should Jenna ell ber Treasury bond and ivest the proceeds in the stocl: fund? Give at market value and invests the least one reason for and against this plan. saves S3,000 at age 22 (year0) plus Treasury bond proceeds. (2) The part of amaity is from 9. At the last minute, Jerma coniders investing in Coca-Cola stock at a price of $55.55 per 23 (year1) to 65 Once she retires,Jenna wants those satvings to last for 25 years until sheis Both Adam and Jerma need to deternmine their best options. Case Questions share instead. The stock just paid an anual dividend of S1.76 and she expects the dividend togrow at 4% annually. If the next dividend is due in one year, what expected return is Coca-Cola stock offerina? 1. What are the cash lows associated with each of Adam's three car financing opticns? 2. Suppove that, similar to his parenta, Adam had pleraty of cash in the bank so that he could easily afford to pay cash for the car without runing into debt now or in the foreseeable