This carse direns on matrial from Chapters 37. Adam has jue graduated, and has a good job at a decent isarting salary. He bopes to purchase his first new car. The car that Adam is considering costs \$47,000. The dealer has given him three payment options: 1. Zero pereent financing. Make a $4,100 down payment from bis savings and finance the remainder with a ONE APR loan for 6o months. Adam has more than enoagh cach for the down payment, thanks to genctous sraduation gifss. 2. Rebate with no monyy down. Receive a $4,400 rebate from the car dealer and finance the reat with a standard 60 -month loan, with an 6.00\% APR. He likes this option, as he could thiek of many cher uses for the 54.100 of his saving. 3. Pay aish, Get the $4.400 rehate and pay the rest with cash. While Adam doesitt have balince of the car cost in hand, he wants to cvaluate this option. His parents always paid cash when they bough a family car, Adam wonders if this really was a good idea. Adam's fellow graduate, Jenna, has becn trying to decide how much of her new salary she coald save for retireneent. Jenna is considering putting 55,000 of her anmual savings in a stock fund. She just tuimed 22 and has a long way to go until retirement at age 60 , and she considers this risk level reasonable. The fund she is looking at has earnad an avcrage of 6.00% over the pait 15 years and could be expected to continue carning this amount, on average. While she has no current retirement savings, five years ago Jenna's grandparents gave her a new 30-ycar U.S. Treasury bond with a 525,00 face value with 2.5% semianoual coupons. Jenna wants to know her retirement iscome if she both (1) sells her Treasury bond at its current market value and invests the proceds in the stock fand and (2) senes an additical $5,000 at the end of each year in the stock fund froti now until whe retires. Ovee she retircs, Jenna wants those savings to last until she is 93 . Case Questions 1. What are the cash flows associated with cach of Adam's three car financing options? 2. Suppose that, similar to his parents, Adam had plenty of cash in the bank wo that he could casily afford to pay cash for the car without running inio debt now of in the foresceable fufure. If his cash carns interest at a 1.50% APR (based on monthly compounding) at the bank, what would be his best purchase option for the car? 3. In fact, Adam doem't have sufficient cach to cover all his debts including has (substantial) student loans. Tbe leans have a 12.5\%. APR, and any moncy spent on the car could aot be used to pay down the loans. What is the best option for Adam now? (hinf: Nete that having an extra 51 today saves Adam roughly 51.125 nett year because be can pay dows the studeat loans. So, 12% is Adam's time value of moocy in this case.) 5 ? 4. Suppose instead Adam has a lot of credit card debt, with an 26.25\%. APR, and he doubts he will pay off this debt completely before be pays off the car, What is Adam's best option now? (Hint: See Hint on 13 abeve) 5. Sappose Jenna's Treacary bond has a coupon imerest rate of 2.5%, paid semianneally, while current Treasury bonds with the same maturify date have a yold to maturity of 3.50% (expresed as an APH, with semiannual compounding). If ahe has juat received the bond's loth coupon, what is the value of Jenna's Treasury Bond today? 6. Suppose Jenna sells the bood, reinvests the proceeds, and then aves as she planeed. If, indeed, Jenna earns a 6.00\% atnual return on her avings, hew much could she withdraw each year in retirement? (Asume sbe begins withdrawing the moncy from the account in equal amounts at the end of eacb year once her retirement begins.) 7. Jerina expects her ialary to grew regularly. While there ase no guarantees, she believes an increaw of 3.25% a year is reasonable. She plans to save $5,000 the first year, and then increase the amount she saves by the amount of her arnual salary increase. Unfortunately, prices will also grow due to inflation. Suppose Jenna. n the foresecable fature If bis cash cams interect at a 1.50% APR (based on monthly compounding) at the bank, what woald be his beat purehase option for the car? 3. In fact, Adam doesn't luve sufficieat cash to cover all his debes inclading his (subvtantial) student loans. The loans have a 12.576 APP, and any money spent on he car could not be used to pay down the loans. What is the best option for Adam now? (Hint: Note that having an extra $1 today aves Adam roughly $1.125 net year scause he can pay down the student loans. So, 12% is Adam's time valae of moncy in this case) 4. Suppose initead Adam has a lot of credit card debt, with an 26.25%APR, and be doubts he will pay off this debt completely before he pays off the car. What is dam's best option now? (Hint: Sce Hist on 33 above) 5. Suppose Jenna's Treasury bond has a coupon interest rale of 25%, paid semiannually, while curtent Treasury bonds with the same maturity date kave a yield to naturity of 3.50% (expressed as an APR with semiannual compounding). If she has juat received the boed's 10 th coupon, what is the value of Jenna's Treaury Bosd odis? 6. Suppose Jenna sells the bond, reinvests the proceds, and then saves as she planned. If, indecd, Jenna carns a 6.00% annoal return on her avings, how much ould she withdraw each year in retirement? (Asvume she begins withdrawing the mobey from the account in equal ambunts at the cod of each year once her retirement 7. Jenna expets her calary to grew regularly. While there are oo guarantecs, she believes an increase of 3.25% a year is reasonable. She plans to stve $5, 000 the irs year, and then iocresse the amount she saves by the amount of ber annual salary increase. Unfortunately, prices will ako grow due to inflation. Suppose Jenna saumes there will be 3% inflation every year. In retirement, she will need to increase her withdrawals each year to kecp up with inflation. A. How much moocy will Jensa have at her retirement? b. How much can she withdraw at the end of tbe first year of her retirement in today's dollars? Hint: Value Jenna's Retirement Fund at Retirement Age = FV of Treasury Bood + FV of Jenna's Savings 8. Sbould lenina sell her Treasary bond and invet the proceeds in the stock fund? Give at least one reasoe for and againat this plan. 9. At the last minute, Jenna coosiders investing in Coca-Cola stock at a price of 563.99 per share insesd. The stock just paid an annual dividend of 51.76 and he expects the dividend to grow at 2.00% annally. If the neat dividend is due in one year, what expected return is Coca-Cola stock offering? Ouraten 1 Mati Mostistrivin notm Ouraine I III his) Cuaten 4(13 pan When eptiam dent ke aileat s. Quentios s(4ab} Ourvien 1(12pti) Cise Guarinist Cine Corstien This carse direns on matrial from Chapters 37. Adam has jue graduated, and has a good job at a decent isarting salary. He bopes to purchase his first new car. The car that Adam is considering costs \$47,000. The dealer has given him three payment options: 1. Zero pereent financing. Make a $4,100 down payment from bis savings and finance the remainder with a ONE APR loan for 6o months. Adam has more than enoagh cach for the down payment, thanks to genctous sraduation gifss. 2. Rebate with no monyy down. Receive a $4,400 rebate from the car dealer and finance the reat with a standard 60 -month loan, with an 6.00\% APR. He likes this option, as he could thiek of many cher uses for the 54.100 of his saving. 3. Pay aish, Get the $4.400 rehate and pay the rest with cash. While Adam doesitt have balince of the car cost in hand, he wants to cvaluate this option. His parents always paid cash when they bough a family car, Adam wonders if this really was a good idea. Adam's fellow graduate, Jenna, has becn trying to decide how much of her new salary she coald save for retireneent. Jenna is considering putting 55,000 of her anmual savings in a stock fund. She just tuimed 22 and has a long way to go until retirement at age 60 , and she considers this risk level reasonable. The fund she is looking at has earnad an avcrage of 6.00% over the pait 15 years and could be expected to continue carning this amount, on average. While she has no current retirement savings, five years ago Jenna's grandparents gave her a new 30-ycar U.S. Treasury bond with a 525,00 face value with 2.5% semianoual coupons. Jenna wants to know her retirement iscome if she both (1) sells her Treasury bond at its current market value and invests the proceds in the stock fand and (2) senes an additical $5,000 at the end of each year in the stock fund froti now until whe retires. Ovee she retircs, Jenna wants those savings to last until she is 93 . Case Questions 1. What are the cash flows associated with cach of Adam's three car financing options? 2. Suppose that, similar to his parents, Adam had plenty of cash in the bank wo that he could casily afford to pay cash for the car without running inio debt now of in the foresceable fufure. If his cash carns interest at a 1.50% APR (based on monthly compounding) at the bank, what would be his best purchase option for the car? 3. In fact, Adam doem't have sufficient cach to cover all his debts including has (substantial) student loans. Tbe leans have a 12.5\%. APR, and any moncy spent on the car could aot be used to pay down the loans. What is the best option for Adam now? (hinf: Nete that having an extra 51 today saves Adam roughly 51.125 nett year because be can pay dows the studeat loans. So, 12% is Adam's time value of moocy in this case.) 5 ? 4. Suppose instead Adam has a lot of credit card debt, with an 26.25\%. APR, and he doubts he will pay off this debt completely before be pays off the car, What is Adam's best option now? (Hint: See Hint on 13 abeve) 5. Sappose Jenna's Treacary bond has a coupon imerest rate of 2.5%, paid semianneally, while current Treasury bonds with the same maturify date have a yold to maturity of 3.50% (expresed as an APH, with semiannual compounding). If ahe has juat received the bond's loth coupon, what is the value of Jenna's Treasury Bond today? 6. Suppose Jenna sells the bood, reinvests the proceeds, and then aves as she planeed. If, indeed, Jenna earns a 6.00\% atnual return on her avings, hew much could she withdraw each year in retirement? (Asume sbe begins withdrawing the moncy from the account in equal amounts at the end of eacb year once her retirement begins.) 7. Jerina expects her ialary to grew regularly. While there ase no guarantees, she believes an increaw of 3.25% a year is reasonable. She plans to save $5,000 the first year, and then increase the amount she saves by the amount of her arnual salary increase. Unfortunately, prices will also grow due to inflation. Suppose Jenna. n the foresecable fature If bis cash cams interect at a 1.50% APR (based on monthly compounding) at the bank, what woald be his beat purehase option for the car? 3. In fact, Adam doesn't luve sufficieat cash to cover all his debes inclading his (subvtantial) student loans. The loans have a 12.576 APP, and any money spent on he car could not be used to pay down the loans. What is the best option for Adam now? (Hint: Note that having an extra $1 today aves Adam roughly $1.125 net year scause he can pay down the student loans. So, 12% is Adam's time valae of moncy in this case) 4. Suppose initead Adam has a lot of credit card debt, with an 26.25%APR, and be doubts he will pay off this debt completely before he pays off the car. What is dam's best option now? (Hint: Sce Hist on 33 above) 5. Suppose Jenna's Treasury bond has a coupon interest rale of 25%, paid semiannually, while curtent Treasury bonds with the same maturity date kave a yield to naturity of 3.50% (expressed as an APR with semiannual compounding). If she has juat received the boed's 10 th coupon, what is the value of Jenna's Treaury Bosd odis? 6. Suppose Jenna sells the bond, reinvests the proceds, and then saves as she planned. If, indecd, Jenna carns a 6.00% annoal return on her avings, how much ould she withdraw each year in retirement? (Asvume she begins withdrawing the mobey from the account in equal ambunts at the cod of each year once her retirement 7. Jenna expets her calary to grew regularly. While there are oo guarantecs, she believes an increase of 3.25% a year is reasonable. She plans to stve $5, 000 the irs year, and then iocresse the amount she saves by the amount of ber annual salary increase. Unfortunately, prices will ako grow due to inflation. Suppose Jenna saumes there will be 3% inflation every year. In retirement, she will need to increase her withdrawals each year to kecp up with inflation. A. How much moocy will Jensa have at her retirement? b. How much can she withdraw at the end of tbe first year of her retirement in today's dollars? Hint: Value Jenna's Retirement Fund at Retirement Age = FV of Treasury Bood + FV of Jenna's Savings 8. Sbould lenina sell her Treasary bond and invet the proceeds in the stock fund? Give at least one reasoe for and againat this plan. 9. At the last minute, Jenna coosiders investing in Coca-Cola stock at a price of 563.99 per share insesd. The stock just paid an annual dividend of 51.76 and he expects the dividend to grow at 2.00% annally. If the neat dividend is due in one year, what expected return is Coca-Cola stock offering? Ouraten 1 Mati Mostistrivin notm Ouraine I III his) Cuaten 4(13 pan When eptiam dent ke aileat s. Quentios s(4ab} Ourvien 1(12pti) Cise Guarinist Cine Corstien