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Sally wants to buy a new mini-van (cool!) to replace her aging SUV. She estimates that her current SUV will last three more years and
Sally wants to buy a new mini-van (cool!) to replace her aging SUV. She estimates that her current SUV will last three more years and have no salvage (trade-in) value. She will purchase the new van after the SUV wears out (in three years). The type of van she would like to buy currently costs $25,000. Sally estimates that the price of the van will increase at 3% per year (compounded yearly) for the next three years. When she buys the van three years from now, she will finance the purchase with a down payment and a five-year loan (60 month) from her bank. Sally expects the bank to charge her 6% interest per year compounded monthly. The loan will result in a monthly payment of P. Sally currently does not have any savings. However, she can deposit an amount S each month (including the last month) into a savings account that earns 3% per year, compounded monthly. - Sally wants to pretend that she already owns the car by setting S = P. That is, she is going to start saving S now. The amount she saves will be equal to her payment P; that way, she will not notice a change once she buys the car. In addition, if she can't afford to save S then she knows she cannot afford to make the payment P. How much does Sally need to save each month, S, to ensure that she has enough money for a down payment, such that her car payment, P, will be equal to S? Make sure to draw any cash flow diagrams that you need
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