Department of Finance
BUSFIN 6211-0010 Finance I
Section # 4195
Instructor: Kennia Papadakis
Fall 2015

Individual Assignment

Print Name: _____________________

Total Points = 30

OSU email: _____________________

10 % of total grade
Signature / Date: ________________

Guidelines:
You may use notes and required reading to answer the questions.
Collaboration among students is not allowed.
Please answer each problem, print and attach your answers to this document, and bring a signed copy to class on Tuesday September 8, 2015

Problem #1 – 10 points
You decide to purchase a $2500 TV at YouBuy, an electronics retailer. You have $2500 cash in your pocket. The bank rate of interest is 10%. The salesman offers you a choice of three ways to pay:

i) You can get $300 off the price today, so you would have to pay $2200 today. ii) You can pay nothing today, $1250 in one year, and $1250 in two years. iii) You can pay $2500 in two years plus payment of a $100 financing charge today.

Which option should you choose?

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Problem #2 – 20 points (15 points for part a) and 5 points for part b) )
Bill and Jane are married with one child. The current date is the start of the college year. All tuition is paid at the start of the year. They anticipate their child will go to college 7 years from now and will attend for four years at a cost of $50,000 per year.
They anticipate that Jane’s mother will give them $100,000 7 years from now to help pay for the college costs. Finally, they also plan to purchase a vacation house in the mountains 10 years from now for $350,000. They can lend and borrow as much as they like at 5% per year from their bank.

a) Suppose Bill and Jane wish to save a single lump sum amount today so that
(together with the anticipated gift) they will have just enough to pay for the college costs and vacation house in the future. What must this lump sum be?

b) Suppose instead that they wish to save S dollars each year with the first deposit now and the last nine years from today (so 10 total deposits). What must S be so that, when combined with the gift, they will be able to send their child to college and afford the holiday house in the mountains?

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