Non-Annual Cash Flows 43. Suppose you currently have $5000 in your savings accou

Question

Non-Annual Cash Flows 43. Suppose you currently have $5000 in your savings account, and your bank pays inter- est at a rate of 0.5% per month. If you make no further deposits or withdrawals, how much will you have in the account in five years? 44. Your firm spends $5000 every month on printing and mailing costs, sending state- ments to customers. If the interest rate is 0.5% per month, what is the present value of eliminating this cost by sending the statements electronically? 45. You are looking to buy a car and can afford to pay $200 per month. If the interest rate on a car loan is 0.75% per month for a 60-month loan, what is the most expensive car you can afford to buy? 46. You have just entered college and have decided to pay for your living expenses using a credit card that has no minimum monthly payment. You intend to charge $1000 per month on the card for the next 45 months. The card carries a monthly interest rate of 1%. How much money will you owe on the card 46 months from now, when you receive your first statement post-graduation? 47. You intend to endow a scholarship that pays S5000 every 6 months, starting 6 months from now. If the appropriate discount rate is 2% per 6-month period, how much money will you have to donate today to endow the scholarship?

Explanation / Answer

43)

Number of periods = 5 × 12 = 60

Future value = present value ( 1 + r)n

Future value = 5000 ( 1 + 0.005)60

future value = 5000 × 1.34885

Future value = $6,744.3

47)

Present value = cash flow / rate

Present value = 5000 / 0.02

Present value = $250,000

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