Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A couple, both 3 0 , is buying a car for their growing family. They've saved 3 0 0 , 0 0 0 for a
A couple, both is buying a car for their growing family. They've saved for a down payment and budgeted $ per month for car loan payments and their child's savings. The car's price is They plan to invest in a mutual fund for their child's education with an average return of per year compounded monthly over years.
Considering potential salary increases and changes in their financial situation as they embrace parenthood, the couple is open to revisiting and adjusting their budget periodically. They aim to increment their monthly savings by every year to ensure that they stay on track with their financial goals and adapt to any unforeseen circumstances.
Three car financing options:
Option : year fixed rate at per year compounded monthly, monthly payments, minimum down payment, point closing costs
Option : year fixed rate at per year compounded monthly, monthly payments, minimum down payment, point closing costs
Option : year fixed rate at per year compounded monthly, monthly payments, minimum down payment, point closing cost
Questions:
Estimate a probability mass function of the longterm annual inflation rate of USA with at least three values using economic sources. Utilize this function in your calculations.
For each credit option, calculate the expected savings account balance the couple will have attained for their childs education. If any excess amount will be left from after initial payments are made, decide on how this money should be used. To maximize their account balance, should the couple use the remaining money to make a larger down payment, or should they invest it to their savings account?
Evaluate each credit option in two ways:
i using the expected balances,
ii using the balances determined by the expected values of the inflation rate.
Which approach provides a better estimate of the present worth of the balances? Discuss. Find the best credit option for each method.
How sensitive are your findings against the salary increases the couple expects? Make the same calculations and comparison with and as the year increments in their savings. Select the best credit options in each case. Was your selection different in Q
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started