Discuss the below:
1. 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?
2. 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?
FEDERAL HOME LOAN BANKS (Use the below information for calculations)
BANKS As of 19-Jan-2015
OVERVIEW
Price: 100.57
Coupon (%): 1.375
Maturity Date: 22-Dec-2014
Yield to Maturity (%): -8.710
Current Yield (%): 1.367
Fitch Ratings: AAA
Coupon Payment Frequency: Semi-Annual
First Coupon Date: 22-Dec-2010
Type: Corporate
Callable: No
OFFERING INFORMATION
Quantity Available: 15
Minimum Trade Qty: 15
Dated Date: 22-Sep-2010
Settlement Date: 2-Dec-2014