Homework Answers
| P5-6 | |||||
| a) | Year | Price | Inflation Rate | Inflation Amount | Total price |
| (Col A) | (Col B) | (Col C) | (Col D =Col B * Col C) | (Col B + Col D) | |
| 0(today) | 14,000.00 | - | 14,000.00 | ||
| 1 | 14,000.00 | 2% | 280.00 | 14,280.00 | |
| 2 | 14,280.00 | 4% | 571.20 | 14,851.20 | |
| 3 | 14,851.20 | 4% | 594.05 | 15,445.25 | |
| 4 | 15,445.25 | 4% | 617.81 | 16,063.06 | |
| 5 | 16,063.06 | 4% | 642.52 | 16,705.58 |
Estimate Price of the Car after 5 years = $ 16705.58
| b) | Year | Price | Inflation Rate | Inflation Amount | Total price |
| (Col A) | (Col B) | (Col C) | (Col D =Col B * Col C) | (Col B + Col D) | |
| 0(today) | 14,000.00 | - | 14,000.00 | ||
| 1 | 14,000.00 | 4% | 560.00 | 14,560.00 | |
| 2 | 14,560.00 | 4% | 582.40 | 15,142.40 | |
| 3 | 15,142.40 | 4% | 605.70 | 15,748.10 | |
| 4 | 15,748.10 | 4% | 629.92 | 16,378.02 | |
| 5 | 16,378.02 | 4% | 655.12 | 17,033.14 |
Estimate price of car after 5 years @ 4% of Inflation $ 17033.14
Estimate Price of the Car after 5 years @2% of Inflation in 1st year and 4%in rest $ 16705.58
Car will be expensive by $ 327.56 ($ 17033.14 - $ 16705.58)
| c) | Year | Price | Inflation Rate | Inflation Amount | Total price |
| (Col A) | (Col B) | (Col C) | (Col D =Col B * Col C) | (Col B + Col D) | |
| 0(today) | 14,000.00 | - | 14,000.00 | ||
| 1 | 14,000.00 | 2% | 280.00 | 14,280.00 | |
| 2 | 14,280.00 | 2% | 285.60 | 14,565.60 | |
| 3 | 14,565.60 | 4% | 582.62 | 15,148.22 | |
| 4 | 15,148.22 | 4% | 605.93 | 15,754.15 | |
| 5 | 15,754.15 | 4% | 630.17 | 16,384.32 |
Estimate Price of the Car after 5 Years $ 16384.32
| P5-32 | ||||
| A. | ||||
| Year | Cash flow | Opportunity Cost Rate | Formula | Present Value |
| 1 | -2000 | 12% | -2000 / (1+0.12) | -1,785.71 |
| 2 | 3000 | 12% | 3000 / (1+0.12)2 | 2,391.58 |
| 3 | 4000 | 12% | 4000 / (1+0.12)3 | 2,847.12 |
| 4 | 6000 | 12% | 6000 / (1+0.12)4 | 3,813.11 |
| 5 | 8000 | 12% | 8000 / (1+0.12)5 | 4,539.41 |
| Present Value | 11,805.51 | |||
| B. | ||||
| Year | Cash flow | Opportunity Cost Rate | Formula | Present Value |
| 1 | 10000 | 12% | 10000 / (1+0.12) | 8,928.57 |
| 2 | 5000 | 12% | 5000 / (1+0.12)2 | 3,985.97 |
| 3 | 5000 | 12% | 5000 / (1+0.12)3 | 3,558.90 |
| 4 | 5000 | 12% | 5000 / (1+0.12)4 | 3,177.59 |
| 5 | 5000 | 12% | 5000 / (1+0.12)5 | 2,837.13 |
| 6 | 7000 | 12% | 7000 / (1+0.12)6 | 3,546.42 |
| Present Value | 26,034.58 | |||
| C. | ||||
| Year | Cash flow | Opportunity Cost Rate | Formula | Present Value |
| 1 | 10000 | 12% | 10000 / (1+0.12) | 8,928.57 |
| 2 | 10000 | 12% | 10000 / (1+0.12)2 | 7,971.94 |
| 3 | 10000 | 12% | 10000 / (1+0.12)3 | 7,117.80 |
| 4 | 10000 | 12% | 10000 / (1+0.12)4 |
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Time value Personal Finance Problem As part of your financial planning, you wish to purchase a new car 6 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 3% to 6% per year over the next 6 years.a. Estimate the price of the car at the end of 6 years if inflation is (1) 3% per year and (2) 6% per year.b. How much more expensive will...
As
part of your financial planning, you wish to purchase a new car 8
years from today. The car you wish to purchase costs $14,000 today,
and your research indicates that its price will increase by 3% to
6% per year over the next 8 years.
a. Estimate the price of the car at the end of 8 years if
inflation is (1.) 3% per year and (2.) 6% per year.
b. How much more expensive will the car be...
Please do show works
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