6.Ms. Cressida bought a car for $48,000 exactly three years ago. After making an up-front equity payment of $5,000, she borrowed the rest of the car value from her bank in the form of a five-year loan. She negotiated a loan rate of 2.5% APR with semi-annual compounding. She makes loan payments of an equal dollar amount every two weeks (i.e., biweekly), and her first loan payment was due two weeks after she signed the loan contract.

a.What is the effective annual rate on Cressida's loan?

b.What is the effective biweekly interest rate on Cressida's loan?

c.What is Cressida's biweekly loan payment?

d.What is Cressida's current loan balance?

e.What is the total amount of interest that Cressida would have paid to the bank after five years of loan payments?

f.Show the amortization schedule (table) for the first five payments and the last five payments in the amortization table provided below. Round your answers in the table to two decimal places.

7.You are making plans for your retirement. You have just turned 30 and want to retire on your 65^th birthday. Once retired, you plan to move to a tax-free Caribbean state, where you believe you can live comfortably on your retirement savings. You plan to make your first withdrawal from your retirement savings when you retire at age 65 and your last withdrawal one month before your 85^th birthday. Based on family history, you expect to live until exactly age 85.

Your plan is to have a total of $1 million when you retire. Your current salary is $36,000 per year, or $3,000 per month. Your personal tax rate is approximately 30%. You estimate that you can earn an average return of 12% APR compounded annually on any money you invest over the next 60 years. You want to start putting aside a fixed amount of money at the end of every month until your retirement at age 65. You will make your first deposit one month from now and your last deposit on your 65^th birthday.

a.To ensure that you are able to achieve your retirement objective, what is the maximum percentage of your after-tax monthly income that you can spend?

b.Given that you have $1 million in your retirement savings at age 65, what is the fixed monthly dollar amount that you can withdraw until age 85? Assume no taxes will be levied when you withdraw your retirement savings.

8. You have just received an inheritance of $20,000. You wish to invest in fixed income securities such as bonds, which you think are less risky than stocks. After some research, you have narrowed down your choices to the following three fixed income securities:

One-year Treasury Bill:

Face value of $1000

Yield to maturity of 1.74%

Coupon Bond A:

Two years to maturity

Face value of $1000

Coupon rate of 3%, with semi-annual coupon payments

Price multiple of face value = 1.0189

Coupon Bond B:

Five years to maturity

Face value of $1000

Coupon rate of 3.5%, with annual coupon payments

Yield to maturity of 2.51%

All yields to maturity are compounded semi-annually.

a.What is the price of the one-year treasury bill?

b.What is the yield to maturity on Coupon Bond A?

c.What is the price of Coupon Bond B?

d.If the inflation rate is 1.5%, what are the real yields on the one-year treasury bill, Coupon Bond A, and Coupon Bond B?

e.If your personal real hurdle rate (the minimum rate of return required on investments) is 1%, which of the three fixed income securities would you choose to invest in?