Question
Please provide a step by step explanation for each question answered. And also the computing of computations. 1) You have just taken out a four-year
Please provide a step by step explanation for each question answered. And also the computing of computations.
1) You have just taken out a four-year loan from a bank to buy a car. The ring costs $6000. You plan to put down $1000 and borrow $5000. You will need to make annual payments of $1000 at the end of each year. Show the timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective?
2) Suppose you receive $1,250 at the end of each year for the next four years. a. If the interest rate is 10%, what is the present value of these cash flows? b. What is the future value in four years of the present value you computed in (a)? c. Suppose you deposit the cash flows in a bank account that pays 10% interest per year. What is the balance in the account at the end of each of the next four years (after your deposit is made)? How does the final bank balance compare with your answer in (b)?
3) You want to endow a scholarship that will pay $15,000 per year forever, starting one year from now. If the school's endowment discount rate is 6%, what amount must you donate to endow the scholarship?
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