f) Consider the following cash flow: (YEAR) CASH FLOW (0) -100; (1) +50; (2) +60
ID: 2506066 • Letter: F
Question
f)Consider the following cash flow:
(YEAR) CASH FLOW
(0) -100; (1) +50; (2) +60; (3) +70; (4) +80; (5) +140;
Which equation describes this cash flow?
g)Qiqi has overused her credit card. She decides to only pay cash until the balance of $8,574 is paid off. The credit people charge 18% compounded monthly.
What is the effective interest rate?
h)Qiqi has overused her credit card. She decides to only pay cash until the balance of $8,574 is paid off. The credit people charge 18% compounded monthly.
If she pays $225 a month, how many months will it take to retire the loan?
i)It is estimated that the maintenance cost on a new car will be $400 the first year, increasing $100 a year for each subsequent year. How much must you set aside when you buy the car, to cover the maintenance costs for 7 years at 5%? Answer to nearest dollar please.
Explanation / Answer
f) equation that describes cash flow is
present value =-100+50/(1+r) +60/(1+r)^2 +70/(1+r)^3 +80/(1+r)^4 +140/(1+r)^5
g)effective interest rate =(1+r/12)^12 -1
=(1+18/1200)^12 -1
=19.56%
h)=> 8574 = 225*(1+18/1200)^n ( As 18% per year., per month =
=> n=ln(38.1)/ln(1.015)
=> n=244.5 months
so it will take 244 and half months
i) present value =400/(1.05) +500/(1.05)^2+600/(1.05)^3+700/(1.05)^4+800/(1.05)^5 +900/(1.05)^6 +1000/(1.05)^7 (As n=7 yrs)
=$3937.75
So we have to set aside $3937.75 for maintainance
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