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Dreams Do Come True

  1. Dreams Do Come True

    Imagine that you have decided you need a new car, but not any car will do; you have decided to purchase the car of your dreams. Conduct some research as to the cost of this car.  You have determined in this imagined scenario that you could afford to make a 10% down payment.  You can borrow the balance either from your local bank using a four-year loan or from the dealership’s finance company.  If you purchase from your dealership’s finance company, the APR will be 10% with your 10% down and monthly payments over three years. However, the dealership will give you a rebate of 5% of the car price after the three year term is complete.  You want the best deal possible, so you consider the following questions:

  • What type of car have you selected, and what will it cost?
  • What is the interest rate from your local bank for a car loan for four years?
  • What will your payment be to your local bank, assuming your 10% down payment? Be sure to use the formula provided in Chapter 4 and show your work. How much will that car have cost in four years?
  • What will your payment be to the dealership finance company assuming your 10% down payment? Be sure to use the formula provided in Chapter 4 and show your work. How much will that car have cost in 3 years?
  • Which is the better deal and why?

 

Guided Response: Review several of your classmates’ posts. Respond to at least two classmates by sharing whether you agree or disagree with how they arrived at their answers. Are there any alternative financing options that may be even better?

  1. Investing in Bonds 

    Go to the Yahoo Finance Bonds Center.

    1. Under: Bonds Center click Bond Screener:
    2. Click the Corporate check box under Bond Type then click Find Bonds.
    3. Choose any bond.

 

Assume interest rates for bonds today is 5% for an AAA rated bond. Calculate the price of the bond you have selected relative to the 5%. Is the bond selling at a premium or a discount? Why? Be sure to show how you arrived at your answer.  What other factors may influence the value of a bond?

Guided Response: Review several of your classmates’ posts. Respond to at least two classmates by sharing your view of their conclusion. Are there any other factors that you can offer that may explain why the bond is selling at a premium or discount?

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