Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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QUESTION 3 You are purchasing a computer and the company offers two payment options. He can pay $2500 today, or twelve monthly installments at the beginning of every month for twelve months. Assume d = 6% when calculating the size of the monthly installments. a) Calculate the size of the monthly installment. b) Assume you can borrow at a rate = 5%. You borrow money to pay for each of the twelve payments when it is due. How much money to you need to repay at the end of the year? c) How much money would you need to repay at the end of the year if you borrowed the $2500 up front payment instead? Would you prefer the up front option or installment option in this case? Why? d) Now assume instead that you have a savings account with $2500 in it. This account earns (¹2) = 7%. You pay each monthly installment from the savings account when it comes due. How much money do you have in the account at the end of the year? Would you prefer the up front option or installment option in this case? Why?
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Transcribed Image Text:QUESTION 3 You are purchasing a computer and the company offers two payment options. He can pay $2500 today, or twelve monthly installments at the beginning of every month for twelve months. Assume d = 6% when calculating the size of the monthly installments. a) Calculate the size of the monthly installment. b) Assume you can borrow at a rate = 5%. You borrow money to pay for each of the twelve payments when it is due. How much money to you need to repay at the end of the year? c) How much money would you need to repay at the end of the year if you borrowed the $2500 up front payment instead? Would you prefer the up front option or installment option in this case? Why? d) Now assume instead that you have a savings account with $2500 in it. This account earns (¹2) = 7%. You pay each monthly installment from the savings account when it comes due. How much money do you have in the account at the end of the year? Would you prefer the up front option or installment option in this case? Why?
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