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# 1) Anil has two offers to buy his is motorcycle. The first offer is a cash price

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1) Anil has two offers to buy his is motorcycle. The first offer is a cash price of $15,000. The second offer is a down payment of $5000, and quarterly payments of $725 for four years. If his money can earn 5.5% compounded quarterly, which option should Anil choose? What is the economic advantage?

2) Kristina is deciding whether to deposit $1000 per year for 10 years into an RRSP, or to wait five years, and then deposit $2000 per year. If interest is 4.25% compounded yearly, which option should Kristina choose? What is the economic advantage of her choice?

3) You can purchase a residential building lot for $60,000 cash or for $10,000 down and month-end payments of $1000 for five years. If money is worth 7.5% compounded monthly, which option should you choose?

4) A lottery offers the winner the choice between a $150,000 cash prize or month-end payments of $1000 for 12 years, increasing to $1500 per month for the next 12 years. Which alternative would you choose if money can earn 8.25% compounded monthly over the 25-year period?

5) You have received two offers on the used car you wish to sell. Mr. Lindberg is offering $9500 cash, and Mrs. Martel’s offer is five semiannual payments of $2000 including one on the purchase date. Which offer has the greater economic value using a discount rate of 6% compounded semiannually? What is the economic advantage in current dollars of the preferred alternative?

6) You can purchase a residential building lot for $90,000 cash or for $20,000 down and quarterly payments of $5000 for four years. The first payment would be due three months after the purchase date. If the money you would use for a cash purchase can earn 8% compounded quarterly during the next four years, which option should you choose? What is the economic advantage in current dollars of the preferred alternative?

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