Adam has just graduated, and has a good job at a decent starting salary. He hopes to purchase his first new car. The

car that Adam is contidering costs $$65,000.$ The dealer has given him three payment options: $1.$ Zero percent flnaving. Make a $$6,000$ down payment fom his savings and finance the femainder with a $0\%$

APR loan for $72$ months. Adam has more than enough cash for the down payment, thanks to generous graduation $2.$ Rebate with no money down. Receive a $$4,000$ rebare fom the car dealer and finance the rest with a standard $72$

month loan, with an $5\mathrm{.}20\%$ APR. He likes this option, as he could think of many other uses for the $$6,000$ of his $3.$ Pay cash. Get the $$4,000$ rebate and pay the rest with cash. While Adam doesn't have balance of the car cost

Pay cash. Get the $$4,000$ rebate and pay the rest with cash. While Adam doesn't have balance of the car cost in hand, he wants to evaluate this option. His parents always paid cash when they bought a fmily car; Adam wonders if this really was a good idea.

considering putting $$5,200$ of her annual savings in a stock fond. She just tumed $23$ and has a long way to go until retiremen

at age $66,$ and she considers this risk level reasonable. The fund she is looking at has eamed an average of $7\mathrm{.}50\%$ over the past $15$ years and could be expected to continue eaming this amount, on awerage. While she has no current retioment savings, five

years ago Jenna's grandparents gave her a new $30-$year U$.$S$.$ Treasury bond with a $$19,500$ sce valve with $2\mathrm{.}75\%$ semiannual

Jenna wants to know her retirement income if she both $(1)$ sells her Treasury bond at its current market valve and invests the proceeds in the stock

fund and $(2)$ suves an additional $$5,200$ at the end of each year in the stock: fund fom now vatil the retiret. Once the retires, Jenna wants thone swings to last until the is $95.$

savings to last until she is $95.$

Case Questions $1.$ What are the cash flows associated with each of Adam's three car fnancing options?

Suppose that, simitar to his parents, Adam had plenty of cash in the bank so that he could easily afford to pay cauh for the car without

running into debt now or in the foreseable future. If his cash eams interest at a $1\mathrm{.}05\%$ APR $($based on monthly compounding$)$ at the bank, what would be his best purchase option for the car? $3.$ In fact, Adam doesn't have sufient cash to cover all his debts including his $($substantial$)$ student loans. The loans have a $8\mathrm{.}0\%$ APR.

$$1$ todry saves Adam roughly $$1\mathrm{.}08$ next year because he can pay down the student loans. So$,8\%$ is Adam's time value of moncy in this cane.$)4.$ Suppose instead Adam has a lot of credit card debt, with an $23\mathrm{.}25\%$ APR, and he doubts he will pay of this debt completely before he

Suppose instead Adam has a lot of credit card debt, with an $23\mathrm{.}25\%$

A$.$PR$,$ pays of the car. What is Adam's best option now? $($Hint: See Hint on $=3$ above$)$

$1$ Question $1(12$ pts$)$:

MONTHLY CASH FLOWS:

$($t$)$

$\backslash$table$[[$Option $2],[$Option $3]]$

Question $3(12$ pts$)$:

Which option should he select?

Which option should he select?

Which option should he select?