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Chapter 5, Solutions        Cornett, Adair, and Nofsinger

LG15-40 Future Value  Given a 9 percent interest rate, compute the year 6 future value if deposits of \$1,500 and \$2,500 are made in years 2, and 3, respectively, and a withdrawal of \$700 is made in year 5.

Use equation 5-1:

FV = \$1,500 × (1 + 0.09)4 + \$2,500× (1 + 0.09)3 - \$700× (1 + 0.09)1  = \$2,117.37 + \$3,237.57 – \$763 = \$4,591.94

LG45-41 Low Financing or Cash Back? A car company is offering a choice of deals.  You

LG9 can receive \$500 cash back on the purchase, or a 3 percent APR, 4-year loan. The price of the car is \$15,000 and you could obtain a 4-year loan from your credit union, at 7 percent APR. Which deal is cheaper?

Compare two cases.  The first case is to elect the 3% APR and fully finance \$15,000 over 48 months.  Using equation 5-9, the payment under this scenario would be:

The second case is to take the \$500 cash back, apply it to the purchase and finance only \$14,500 through your credit union at 7%.  The payment under this scenario would be:

The lower payment represents the more advantageous scenario that you should choose, electing the 3% financing through the car dealer.

LG45-42 Low Financing or Cash Back? A car company is offering a choice of deals.  You

LG9 can receive \$1,000 cash back on the purchase, or a 2 percent APR, 5-year loan. The price of the car is \$20,000 and you could obtain a 5-year loan from your credit union, at 7 percent APR.  Which deal is cheaper?

Compare two cases.  The first case is to elect the 2% APR and fully finance \$20,000 over 60 months.  Using equation 5-9, the payment under this scenario would be:

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