Styles BUS301 Assignment 1 - TVM calculations in daily life Question 1 Student Loan Repayment When she is to graduate from college in 2 months, Alice will have a $30,000 balance on her Subsidized Federal Stafford Loan. Interest rate on the loan compounds monthly and the APR is 6.0%. She is now planning her repayment of this loan. There are many repayment options and Alice is considering the following Standard Repayment Plan Pay fixed monthly end-of-month payments Alice can choose how soon she wants to pay off her loan and she is considering whether to pay it off in 10 years or in 20 years. a) If Alice chooses 10 years, how large will be her monthly payment according to the Standard Repayment Plan"? b) If Alice chooses 20 years instead, how large will be her monthly payment according to the Standard Repayment Plan"? c) Based on your answers for parts a) and b), discuss the pro and con of paying off the loan in 20 years instead of 10 d) Suppose Alice does not mind the costs of paying off her loan slowly and wants to pay as little as possible each month. Based on your understanding of the mechanism of loan amortization, how small can Alice's monthly payment be so that she and her descendants can eventually payoff the loan? Heading 2 1 No Spac.. Heading 3 Heading 1 Title Subtitle Subtle Em.. e Emp nse ... JUUNIY Styles BUS301 Assignment 1 - TVM calculations in daily life Question 2 Claiming the Jackpot Alice just won the $900 million jackpot with "Mega Millions". Lottery USA asked Alice to choose how to claim her prize. There are two options available: Cash option Alice gets a pre-tax lump sum of $552 million now and pays 40% tax when receive the amount. Annuity option Alice gets a pre-tax payment of $36 every year for 25 years and pays 40% tax each time when she receives the amount 1. Suppose that Alice can earn 3% annual rate of return on any investment that she makes. If Alice chooses to receive the cash lump sum of $552 million, she could invest the entire amount and then make annual withdrawals from her investment account. How large will be her withdrawals, assuming Alice will make 25 end of year annual withdrawals of equal size so as to empty her account? 2. Based on your answer in part 1 and tax rate of 40%, which option should Alice choose if she can earn 3% annual rate of return on any investment that she makes? (Hint: think about how your answer in part 1 could help you answer this question.) 3. Which option should Alice choose if she can earn 5% annual rate of return on any investment that she makes? Show your calculation supporting the choice. ASUS Aabb ebdi AABBCC AABBCcl AABACD AABI AaBbceDd Aabend AaBbceD. ABCD Aalbo 1 No Spac... Heading! Heading 2 Heading 3 Title Subtitle Subtle Em.. Emphasis Intense E. Stron Styles BUS301 Assignment 1 - TVM calculations in daily life Question 3: Buying an iMac Alice is buying a 27-inch iMac with Retina 5K display and she is deciding between two payment options: L Pay the full price $2,299.00 now Pay monthly payments of $120 fox 24 months at the end of each month Alice can afford to choose either option but she wishes to choose one that is financially wise. Alice is currently investing all her savings in a mutual fund. 1 What would be the monthly interest rate that Alice will pay if she chooses option i? (Complete the timeline and fill in the financial calculator inputs) 2. Which option should Alice choose ir her savings in the mutual fund grow at a monthly rate of 2.5%? 3. Which option should Alice choose her savings in the mutual fund bow at a monthly rate of 1.257 link Bookmark Cross reference Links Object Comment Header Footer Page Number - Comments Header & Footer Text Quick WordArt Drop Box - Parts - Cap- BUS301 Assignment 1 - TVM calculations in daily life Question 4: Planning for Retirement Suppose that you are currently 25 years of age and plan to retire in 35 years. You have developed a lifetime budget and this budget requires that you achieve both of the following financial goals 1) in 35 years, to have $50,000 as an emergency fund, which will be deposited into a savings account 2) in 35 years, to have enough savings for retirement, which will be deposited into a fix-income investment account that pays 5% annual interest. Your deposit should be enough for you to make an $80,000 withdrawal at the end of year every year. 1. in 35 years, how much do you need for the fox-income investment account mentioned in 2? Answer this question without assuming any specific number for how long your retirement will be 2. Assume that you just open an investment account that promises to pay 10% interest compounded annually. You want to deposit equal annual amounts into this account every year for 35 years, starting a year from now. In order to meet both of your financial goals in 35 years, how much will each of your annual deposit have to be