Phil needs a new car and can afford monthly payments of $400. The interest rate on new car loans is 7% (compounded monthly) and assume end of month payments. Phil is comparing whether to arrange a 48- or 60-month loan. With either loan, Phil will borrow the maximum amount and buy the most expensive car possible.

a)What is the maximum he can spend on a car if he arranges a

(i) 48-month loan?

(ii) 60-month loan?

b)Assume the average annual rate of depreciation of a car's value is 18%. Calculate the value of each car at the end of 5 years.

c)If Phil arranges the 48-month loan, he can invest the $400 per month he will save for the last year in a mutual fund expected to pay 5%, compounded monthly. Compare Phil's wealth (the value of his car plus his mutual fund investment) after 5 years if he arranges a 48-month loan versus a 60-month loan.