Natasha inherits 53,213 on Jan 1 and invests this money in a savings account for 3 years. Thereare three options for the savings rate: 5% compounded annually, (5-0.125) % compoundedquarterly, and (5-0.250) % compounded continuously. She also wants to buy a pick-up truck soshe waits for the end of the year and gets the vendor to give her a deal so she can pay for thepickup truck only using the inherited sum. The deal is that she has to make only one paymentafter (3-1) years. The vendor offers her two options for this payment: either an annual interestrate compounded semi-annually of (5+7) % or ([X2}+7.75)% compounded continuously. The cashvalue of the truck today is (53,213-25000).1) What savings rate should she choose?2) For the pickup truck, what vendor payment model should she choose?3) For the rate chosen in (1), what are the effective and nominal annual interest rates?4) Can she afford the truck?

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Answered: Natasha inherits 53,213 on Jan 1 and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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