Question: Hi I need help for the below question especially part (2)!! Thank you in advance. You have just graduated and would like to buy a

Hi I need help for the below question especially part (2)!! Thank you in advance.

You have just graduated and would like to buy a new car but you have no money. Your rich Aunt Amy, who is a retired investment banker at the age of 35 because she knew better, is willing to lend you the money to buy the car, as long as you promise to pay her back in four years. You propose to pay her the rate of interest she would otherwiseget by putting the money in the bank, which hasdeposit and loan rates of 2% and6%, respectively. Based on your projected income and living expenses, you anticipate that you will beable to pay her $30,000, $40,000, $45,000, and $50,000at the end ofeach of the next four years, respectively.

(1) How much would your aunt have in four (4) years if she chooses not to lend you the money but deposit the money into the bank instead? (3 marks)

(2) How much would your aunt have in four (4) years if she chooses to lend you the money? (5 marks)

ATTENTION!! IMPORTANT!! For this part (2) I have a question, the answer I calculated for part (2) is $165,000. But is this answer correct? I am not sure with my answer because this is a 5 marks question and my answer is just one line!! Please help me with this!!

(3) Compare the answer from (1) & (2), you believe your aunt should be indifferent between lending you the money or putting the money in the bank. Discuss whether she would agree with your assessment. (8 marks)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!