Stage 1 - Week 2 Juan Hernndez a graduate from Business School has worked since many years ago and nowadays he has a monthly income of $15,000 gross, for this activity. It is important to consider that he has saved most of his income which adds up to $ 200,000, so the following options have been considered: 1. Buy a new car 2. Put his money to work, that is, invest it in a financial instrument which generates higher interest than a savings account. Note: The $200,000 have been kept in a debit card, which pays a fixed annual interest of 2.70% Determined to make a decision, he began the task of gathering information related to the aforementioned alternatives. The information he gathered is shown below. OPTION 1: BUY A NEW CAR List price, $350,000 Payment alternatives 1. 30% down payment and the rest to be paid in 5 years with possibility of advanced payments. The financial company's fixed interest rate is 15.99% per annum. Opening commission is equal to 3% (unique payment over the amount to be financed) 2. 20% down payment and the rest to be paid in 36 months with a fixed interest rate of 15.99% per annum. Opening commission is equal to 3% on the amount to be financed 3. Pay cash for a car with a discount of 5% invoice value. If Juan chooses this option, he knows that he would have to request a personal loan in the bank where he has his payroll, he would get it to complement the amount of the car's value. The rate he would get charged for the personal loan is 23.75% per annum with a 72 months term and fixed biweekly payments. OPTION 1: BUY A NEW CAR List price, $350,000 Payment alternatives 1. 30% down payment and the rest to be paid in 5 years with possibility of advanced payments. The financial company's fixed interest rate is 15.99% per annum. Opening commission is equal to 3% (unique payment over the amount to be financed) 2. 20% down payment and the rest to be paid in 36 months with a fixed interest rate of 15.99% per annum. Opening commission is equal to 3% on the amount to be financed 3. Pay cash for a car with a discount of 5% invoice value. If Juan chooses this option, he knows that he would have to request a personal loan in the bank where he has his payroll, he would get it to complement the amount of the car's value. The rate he would get charged for the personal loan is 23.75% per annum with a 72 months term and fixed biweekly payments. Stage 1 - week 3 OPTION 2: PUT HIS MONEY TO WORK, FIND A FINANCIAL INSTRUMENT Regarding the investment options, the following alternatives were found: 1. Treasury bond 2. Investment funds 3. Buy foreign currency 4. Purchase of gold standards 5. Bank promissory note, term of 28 days 6. A combination of the aforementioned instruments in the proportions that he chooses. Days later, Juan finds himself in front of his computer concentrating on the alternatives at hand. He knows that on one hand, if he decides to buy a car in any of the first two payment alternatives he could give the $ 200,000 as a down payment or, the minimum required down payment and the money left over could be invested in the options left available. Juan is asking himself, what should I do? What is the best alternative taking into account all the financial and economic variables? Please pay attention to the following details: 1. Include a summary table containing the data outlined in my previous announcement. This enormously facilitates opportune feedback! 2. For the CAT calculation, make sure you apply the IRR ("TIR" in Spanish) to ALL cash flows: The initial amount of the loan and ALL the subsequent payments! Also, remember, the first amount (the loan) has a positive sign and the payments--including the commission in the first one--enter as negative amounts. 3. The monthly or bi-weekly IRR will have to be converted into its Effective Annual Equivalent rate as we saw in class (see also the uploaded recordings). Stage 1 - Week 2 Juan Hernndez a graduate from Business School has worked since many years ago and nowadays he has a monthly income of $15,000 gross, for this activity. It is important to consider that he has saved most of his income which adds up to $ 200,000, so the following options have been considered: 1. Buy a new car 2. Put his money to work, that is, invest it in a financial instrument which generates higher interest than a savings account. Note: The $200,000 have been kept in a debit card, which pays a fixed annual interest of 2.70% Determined to make a decision, he began the task of gathering information related to the aforementioned alternatives. The information he gathered is shown below. OPTION 1: BUY A NEW CAR List price, $350,000 Payment alternatives 1. 30% down payment and the rest to be paid in 5 years with possibility of advanced payments. The financial company's fixed interest rate is 15.99% per annum. Opening commission is equal to 3% (unique payment over the amount to be financed) 2. 20% down payment and the rest to be paid in 36 months with a fixed interest rate of 15.99% per annum. Opening commission is equal to 3% on the amount to be financed 3. Pay cash for a car with a discount of 5% invoice value. If Juan chooses this option, he knows that he would have to request a personal loan in the bank where he has his payroll, he would get it to complement the amount of the car's value. The rate he would get charged for the personal loan is 23.75% per annum with a 72 months term and fixed biweekly payments. OPTION 1: BUY A NEW CAR List price, $350,000 Payment alternatives 1. 30% down payment and the rest to be paid in 5 years with possibility of advanced payments. The financial company's fixed interest rate is 15.99% per annum. Opening commission is equal to 3% (unique payment over the amount to be financed) 2. 20% down payment and the rest to be paid in 36 months with a fixed interest rate of 15.99% per annum. Opening commission is equal to 3% on the amount to be financed 3. Pay cash for a car with a discount of 5% invoice value. If Juan chooses this option, he knows that he would have to request a personal loan in the bank where he has his payroll, he would get it to complement the amount of the car's value. The rate he would get charged for the personal loan is 23.75% per annum with a 72 months term and fixed biweekly payments. Stage 1 - week 3 OPTION 2: PUT HIS MONEY TO WORK, FIND A FINANCIAL INSTRUMENT Regarding the investment options, the following alternatives were found: 1. Treasury bond 2. Investment funds 3. Buy foreign currency 4. Purchase of gold standards 5. Bank promissory note, term of 28 days 6. A combination of the aforementioned instruments in the proportions that he chooses. Days later, Juan finds himself in front of his computer concentrating on the alternatives at hand. He knows that on one hand, if he decides to buy a car in any of the first two payment alternatives he could give the $ 200,000 as a down payment or, the minimum required down payment and the money left over could be invested in the options left available. Juan is asking himself, what should I do? What is the best alternative taking into account all the financial and economic variables? Please pay attention to the following details: 1. Include a summary table containing the data outlined in my previous announcement. This enormously facilitates opportune feedback! 2. For the CAT calculation, make sure you apply the IRR ("TIR" in Spanish) to ALL cash flows: The initial amount of the loan and ALL the subsequent payments! Also, remember, the first amount (the loan) has a positive sign and the payments--including the commission in the first one--enter as negative amounts. 3. The monthly or bi-weekly IRR will have to be converted into its Effective Annual Equivalent rate as we saw in class (see also the uploaded recordings)
