PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337117005
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 7, Problem 11FPE
Summary Introduction
To discuss: Whether person A pay cash for home entertainment center or purchase its own time.
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Mariah Lane wants to buy a home entertainment center. Complete with a big-screen TV and sound system, the unit would cost $4,500. Mariah has over $15,000 in a money fund, so she can easily afford to pay cash for the whole thing (the fund is currently paying 5 percent interest, and Mariah expects that yield to hold for the foreseeable future). To stimulate sales, the dealer is offering to finance the full cost of the unit with a 36-month installment loan at 5 percent, simple. (Note: Assume Mariah is in the 24 percent tax bracket and does not itemize deductions on her tax returns.)
Should she pay cash for the home entertainment center or buy it on time?
Rework the problem, assuming that Mariah has the option of using a 48-month, 6 percent home equity loan to finance the full cost of this entertainment center. Again, use Worksheet 7.2 to determine if Mariah should pay cash or buy on time. Does your answer change from the one you came up with in part (a)?
usingTVM formulas.
Aya and Sakura would like to buy a house and their dream home costs $500,000. Their goal is then to save $50,000 for a down payment and then would take out a mortgage loan for the rest. They plan to put their monthly saved amount in a conservative mutual fund that has a track record of a 4.25% rate of return.
To be sure they don't go spending this money on other things, they are going to move it into their investment account at the beginning of each
month. Their hope is to be able to buy this home in 7 years.
What would their monthly savings amount have to be to reach this goal?
What will be the total interest earned?
The Browning family of Colorado wants to buy a $102,000 house.
(a) If they can get a loan of 80% of the value of the house, what is the amount of the loan?$ (b) What will be the down payment on this loan?$ (c) If they decide to obtain an FHA loan, what will be the minimum cash investment? (Do not forget that the maximum FHA loan for this location has to be determined using the FHA Maximum Loan Values by State table.)$
Chapter 7 Solutions
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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