5_75507_11284893_Case 12
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Virginia Commonwealth University *
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HADM-608
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Finance
Date
Apr 3, 2024
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1. Which bank should Gary choose for a savings account, which bank for a CD, and which bank for
a term loan?
a)
Savings Account- Bank South b)
CD- SunTrust
c)
Term Loan- Bank South
2. Gary will invest the donations from a wealthy investor in CDs. How much will the Center have accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in Question 1.)
$1,910, 729
3. If the Center takes out a 5-year term loan, it would be repaid in equal annual installments. However, suppose Gary decides to pay off the remaining balance of the loan at the end of the third year (after the loan payment for the third year). How much will this final payment be? (Use the term loan interest rate offered by the bank you selected for a term loan in Question 1.)
Remaining balance after year 3 and what Gary would owe would be $105,975.
4. If the Center takes out a 7-year term loan that would be repaid in different annual installments, with the first payment due at the end of Year 1, how much would the fixed annual installment be at the end of each year from Year 4 through Year 7? (Use the term loan interest rate offered by the bank
you selected for a term loan in Question 1.)
(35,147)
5. Gary will invest the contributions to the board-designated building fund in CDs. How much will the equal annual contributions in Years 5, 6, and 7 have to be to ensure the Center will have sufficient funds to pay for projected facility renovations? (Use the CD interest rate offered by the bank you selected for a CD in Question 1.) (Hint: Use a timeline to lay out the Years 0 to 4 and Years 8 to 11 annual cash flows and then use Goal Seek in Excel to solve for the Years 5 to 7 cash flows.)
Year 0: $15,000,000 Year 1-4: $5,000,000
Year 5-7: $10,742,127
6. In your opinion, what are three key learning points from this case?
●
When looking at Saving accounts and CDs, you want the larger EAR. When looking at term loans
you want the lower EAR.
●
TVM helps forecast future cash flows, evaluate investment opportunities, and make informed financial decisions
●
Discounting future cash flows and considering opportunity costs help assess the true value of financial options
●
The importance of risk management and diversification in investment strategies. The case presents different methods of investing donations and managing cash flows over multiple years, each with its own risk-return profile. By diversifying investments across different assets or strategies, individuals or organizations can mitigate risks and enhance overall portfolio resilience.
●
The case highlights the significance of strategic financial planning, particularly in terms of choosing appropriate banking products and investment strategies. It demonstrates how different compounding periods, interest rates, and repayment structures can impact the overall financial outcomes. By carefully analyzing and selecting the most suitable options, individuals or organizations can optimize their financial positions and achieve their goals more effectively.
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Related Questions
A friend asks to borrow $48 from you and return will pay you $51 in one year. If your bank is offering a 6.5% interest
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b. How much money could you borrow today if you pay the bank $51 in one year?
c. Should you loan the money to your friend or deposit it in the bank?
D
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1
5
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(a)
What is the amount (in $) of the down payment?
$
(b)
What is the amount (in $) of the mortgage for which the Bradys are applying?
$
(c)
Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment?
$
(d)
What is the total amount (in $) of interest that will be paid over the life of the loan?
$
(e)
Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per year and the property insurance is…
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You are a loan officer at the West Elm Savings and Loan. Mr. and Mrs. Brady are in your office to apply for a mortgage loan on a house they want to buy. The house has a market value of $170,000. Your bank requires
1
5
of the market value as a down payment.
(a)
What is the amount (in $) of the down payment?
$
(b)
What is the amount (in $) of the mortgage for which the Bradys are applying?
$
(c)
Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment?
$
(d)
What is the total amount (in $) of interest that will be paid over the life of the loan?
$
(e)
Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per year and the property insurance is $1,458 per…
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Bank A
$___
Bank B
$___
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Question 29 options:
Asset
Liability
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I Can state costs and benifits of credit cards and mortgages.
Write a few sentences on what you know and what you might learn
You buy a house for $225,000. You pay $10,000 in fees and down payment. You then pay $2,100 a month for 20 years. How much total do you pay for the house? give me the answer to this.
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Show the timeline of the loan from your perspective. (Select the best choice below.)
O A. Year
1
2
3
4
Cash Flow $4,800
- $1,100
-$1,100
- $1,100
- $1,100
- $1,100
O B. Year
1
2
3
4
Cash Flow - $1,400
$1,100
$1,100
$1,100
$1,100
$1,100
O C. Year
1
2
3
4
Cash Flow - $4,800
$1,100
$1,100
$1,100
$1,100
$1,100
O D. Year
1
2
3
4
Cash Flow $6,200
- $1,100
-$1,100
- $1,100
- $1,100
- $1,100
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K
You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $5,500. You plan to put
down $1,200 and borrow $4,300. You will need to make annual payments of $1,200 at the end of each year. Show the
timeline of the loan from your perspective. How would the timeline differ if you created it from the bank's perspective?
Show the timeline of the loan from your perspective. (Select the best choice below.)
OA. Year
Cash Flow $4,300
0
OB. Year
0
Cash Flow - $1,200
OC. Year
Cash Flow $5,500
0
OD. Year
1
- $1,200
1
$1,200
2
Cash Flow - $4,300 $1,200
- $1,200
2
$1,200
- $1,200 - $1,200
2
$1,200
3
- $1,200
3
$1,200
3
- $1,200
3
$1,200
- $1,200
4
$1,200
4
- $1,200
4
$1,200
5
- $1,200
5
$1,200
5
- $1,200
5
$1,200
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whereas the other pays interest at the rate of 8% / year. If Michael earned a total of $212 in interest during a single year,
how much does he have on deposit in each institution?
at 6%/year $
at 8%/year $
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