Problem 1

You have just started your undergraduate study and expect to graduate in four years. You are

planning to take a part-time job that will generate $1800 per month in the coming 4 years (end of

month payments). In addition, your parents will give you $1700 at the beginning of each month

till your graduation (beginning of month payments). The school tuition fees are covered by your

parents (you don't need to worry about the school fees). You expect that you need to spend

$2,200 per month while studying (at the end of every month). After graduation, you plan to open

your own business. Assume a 6% discount rate compounded semi-annually.

a)What is the PV of all the money you expect to receive in the coming 4 years?

b)What is the PV of your expenses during these four years?

c)How much money you will have saved by the end of year four (needed to start your

business

Problem 2.

You are planning to take an unpaid leave and travel to Mars, 6 years from now. You have

already saved all the money needed for your Mars trip (all the Mars trip costs are already

covered; you don't worry about them). Your main worry is how to cover your family expenses

during your four-years trip to Mars (you expect to stay on Mars for four years). You expect your

family needs $4,000 a month during your stay on Mars (end of month expenses). To secure these

funding you decided to take a part time job. With your new part time job, you can save $2,000

each month for the coming two years (end of months savings). You can also save $1,500 each

month in the third and fourth year (end of month savings). How much should you save each

month in the fifth and sixth year (end of month saving) so that you can cover your family

expenses during your trip to Mars? Assume 12% APR compounded monthly.

Problem 3

You would like to purchase a $40,000 SUV through financing. You are discussing with the car

dealer the different financing options. The dealer suggested you finance the car over 5 years. The

interest rate the dealer will charge you is 3% APR compounded monthly. You are unsure

whether to finance the car over a 5-year or a 7-year period. You are also unsure whether to make

monthly or bi-weekly payments. Your friend has just finished taking the FINA2360 course and

came to you with the following questions that might help you in your decision-making process.

(All payments happen at the end of the periods)

a)If you go with the 5-year financing, monthly payments option, what will be your monthly

payments?

b)If you go with the 7-year financing, monthly payments option, what will be your monthly

payments?

c)How much total interest will you pay with the 5-year financing, monthly payments

option?

d)How much total interest will you pay with the 7-year financing, monthly payments

option?

e)In the event you decided to sell the car after 3 years; how much would you need to pay

the financial institution to close your car loan with the 5-year financing, monthly

payments option?

f)In the event you decided to sell the car after 3 years, how much would you need to pay

the financial institution to close your car loan with the 7-year financing, monthly

payments option?

g)If you

decide to go with the

5-year financing, bi-weekly payments option, what will be

your bi-weekly payments?

h)If you decide to go with the 7-year financing, bi-weekly payments option, what will be

your bi-weekly payments?

In Excel, present the full amortization table (formulas should be connected) for the below four

scenarios:

i)5 years financing and monthly payments

j)7 years financing and monthly payments

k)5 years financing and bi-weekly payments

l)7 years financing and bi-weekly payments