Practice Problems on Series Cash flows nstructions: Please draw a cash flow diag

Question

Practice Problems on Series Cash flows nstructions: Please draw a cash flow diagram for each problem Write the equation before solving the problem numerically. Come prepared on Tuesday (9/26/2017) to explain any of these problem to the class . Problem1 Dr. Vettri bought a new car for $20,000 on September 1, 2017. He has financed the car through a credit union at an interest rate of 2.5% per year for three years. Estimate his monthly payments for the car loan starting October 1, 2017 Problem 2 The College of Engineering, Mathematics and Science plans to provide an academic scholarship for the next 20 years to five students each academic year. Each student will be awarded a yearly scholarship of $3,500. Determine how much money the college should invest into an account that pays 5% interest per year. Problem 3 You have made 24 monthly deposits of $350 into a saving account that pays an interest rate of effective 1.25% per month. Starting from the 25th deposit. you decided to increase each of the next 12 monthly deposits by $50. How much money will be in the savings account immediately after the last deposit? Problem4 Aaron Rodgers has approached you to help decide his future after the 2017 season He can sign a 6-year contract with the Green Bay Packers that starts at $12 million with increases of S3 million each year for his expected playing career of 6-years The Packers have also guaranteed $500,000 in workout bonuses and $6.65 million in signing bonuses each year during the contracted period His other alternative is to sign a 10-year contract with advertising company to do commercials For the contracted period, he will be a paid $19.5million every year and a one-time signing bonus of $40.2 million at the end of the first year. If his interest rate for the time value of money is 9.5%, what will be your

Explanation / Answer

Please post them separate problems. I will answer just first of them as per Chegg policy.

1.

It is simple EMI problem.

EMI = [P x R x (1+R)^N]/[(1+R)^N-1],

where P stands for the loan amount or principal, = 20,000 (Considering complete finance through loan)

R is the interest rate per period (2.5% per annum = 2.5%/12 per month = 0.0020833)

N is the number of monthly instalments (3 years = 36 payments)

EMI = [20000 x 0.0020833 x (1+0.0020833)^36]/[(1+0.0020833)^36-1]

EMI = $577.23

total paid (interest + loan) = $20,780.19

Alternative you can use the excel formula PMT (rate, period, pricipal)

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