Question
You have $6,000 in cash in a savings account and are considering investing $21,000 in a friends new business venture. Since you do not have
You have $6,000 in cash in a savings account and are considering investing $21,000 in a friends new business venture. Since you do not have enough cash for the investment, you get a credit-line with a maximum credit of $50,000 which charges 2% interest a month on the outstanding balance in order to be able to borrow some money in case you go ahead. Fortunately you have a reasonably good job and earn $2,700 a month which leaves you with a cash surplus of $1,000 a month that you can use for savings or investments (if you borrow money youll need to pay the interest out of this $1,000). Note: salaries are paid at the end of the month and it is now the beginning of the month.
3) Considering the situation on the previous slide:
i. If you decide to forego the investment opportunity and save your cash and income surplus in a super-savings account that pays 0.35% interest a month, how much money will you have one year from now?
ii. If you invest in your friends company borrow as little money as possible and use any cash surpluses you might have to pay off the credit line, how much debts do you still have one year from now?
iii. If you invest in your friends company but decide not to use the cash surpluses for reducing the loan (of course you still have to pay interest ), borrow as much as you can and put all the cash you not invested into your friends business in the stock-market (which is expected to return 1% a month), what is the sum of the outstanding credit-line debt and the publicly traded shares you own one year from now?
You can use excel to solve this. Please show/explain your work.
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