Question

.-Hank purchased a $20,000 car two years ago using an 8 percent, 5-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What is the minimum price Hank would need to receive for his car?

-Assume that you contribute $300 per month to a retirement plan for 25 years. Then you are able to increase the contribution to $500 per month for 20 years. Given a 9 percent interest rate, what is the value of your retirement plan after 45 years?

Answer 1

1.

Loan amount = $20,000

Interest Rate = 8%

Time period = 5 years

If he hasn't made any payment,

Loan Amount today = 20000(1.08)²

Loan Amount = $23,328

So he needs $23,328 to sell the car today.

2.

Value of Contribution after 25 years,

Using TVM Calculation,

FV = [PV = 0, PMT = 300, T = 300, I = 9]

FV = 336336.58

For another 20 years,

Using TVM calcultion,

FV = [PV = 336336.58, PMT = 500, T = 240, I = 9]

FV = $2,355,040.43

So, value of investment will be $2,355,040.43