You are considering the purchase of a new car, the reborn VW Beetle, and you have been offered two different deals from two different dealers. Dealer A offers to sell you the car for $20,000, but allows you to put down $2,000 and pay back $18,000 over 36 months (fixed payment each month) at a rate of 8% compounded monthly. Dealer B of fers to sell you the car for $19,500 but requires a down payment of $4,000 with repayment of the remaining $15,500 over 36 months at 10% compounded monthly. Which deal would you choose? (Hint: Find ranges of market interest rates that make one deal more attractive than the other.)3. Dear Financial Adviser,My spouse and I are each 62 and hope to retire in 3 years. After retirement we will receive $5,000 per month after taxes fro m our employers pension plans and $1000 per month after taxes from Social Security. Unfortunately our monthly living expenses are $15,000. Our social obligations preclude further economies.We have $1,200,000 invested in a high-grade corporate-bond mutual fund. Unfortu- nately the after-tax return on the fund has dropped to 3.5% per year. We plan to make annual withdrawals from the fund to cover the difference between our pension and social security income and our living expenses. How long will the money last?Sincerely,Luxury Challenged Marblehead, MA
