Ohioaccounting1010.files.wordpress.com



Additional Differential Interest Problems

Christine wants to buy a new Lexus. The car she wants has a Manufacturer’s Suggested Retail Price of $45,000. The dealer has offered to sell Christine the car for $44,000. He has also offered her 5 years of financing at 5%!! The complete deal is that she puts down $4,000 then she makes annual interest payments of 5% and at the end of the fifth year also pays the $40,000. Christine called the bank and they told her that a car loan like this would normally have an 8% interest rate.

How much is Christine really paying for the Lexus if she takes the Dealer’s Deal?

Assume she takes the Dealer Deal, amortize the payments

Go back to the Christine problem. Assume the Dealer Deal was, $44,000, $4,000 down and the rest in equal annual payments that include interest at 5%.

How much is Christine really paying for the Lexus if she takes the Dealer’s Deal?

Assume she takes the Dealer Deal, amortize the payments

Hannah is thinking about buying a sailboat. The dealer has offered her three options. Option 1: She can pay $30,000 for the boat, no money down and the rest in 60 equal monthly payments that include interest at 2%,

Option 2: She can pay $28,000, 10% down and the rest in 48 monthly payments of interest only at 2%. At the end of 48 months in the second deal, she would pay the balance of the purchase price, $25,200.

Option 3: She pays $25,000 for the boat right now.

She called her bank and they told her that boat loans currently carry an 8% interest rate.

Which is the better deal?

Amortize the first five months of each deal.

You want to buy a new Bright Yellow Geo Prism. You are trying to decide between the following deals. You called the bank and they told you they would loan you the money at a 10% interest rate.

Deal #1. Cory’s very fine used cars has offered you the car for $11,000 with the following terms. $2,000 down and interest only payments of 2% per year for 5 years. At the end of the five years you send him the $9,000. (He says he is offering you this special deal because you go to Ohio U and he almost graduated from there!)

Deal #2. Honest Dave has offered you the same car for $9,500 payable with no money down and the rest in three equal annual payments which include interest at 5%.

Deal #3. Sarah’s Special Deals has offered you the car for $8,200 payable with $200 down and the rest in ten annual equal payments which include interest at 10%. The first payment, after the down payment, will be due in one year.

Deal #4. Lauren’s Prism Sales has offered you the car for $8,700 cash.

Rank the deals as to their attractiveness to you. Which deal is the best and why?

Under which deal do you pay out the most money?

Note # 1

You are considering buying a note from Fred. It is a $100,000 note originally signed on January 1, five years ago. The terms were interest only at 8% with a balloon payment of $100,000 at the end of 10 years. The note has exactly 5 years to maturity. How much would you pay for the note if you wanted to earn 10%?

Amortize it

Same note – how much would you pay to earn 5%?

Amortize it

Note #2

You are considering buying a note from Nicole. The note was originally for $500,000. It called for ten equal annual payments which include interest at 8%. There are exactly five payments left. How much would you pay for the note if you wanted to earn 10%?

Amortize it

Same note – how much would you pay if you wanted to earn 5%?

Amortize it

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download