John Brown is 20 years old and has recently started his first job, Since he knows you are studying financial management he has come to you for some advice. After a brief discussion you discovered the following information about John. -He would like to purchase a car 2 years from now. He anticipates that the vehicle will cost $2,500,000.00. His bank has indicated that they will require a 20% deposit and will finance the remainder at 12% per annum interest with equal monthly installments for 5 years. -On his 30th birthday he will have access to $1,000,000.00 from a savings plan started by his parents. He intends to use this to open a retirement savings account that will mature in 35 years on his 65th birthday. This account will provide a return of 7% per annum and will require that John makes additional deposits of $60,000 at the end of each year in the account.
(i) How much would John need to save at the end of each month to be able to afford the deposit on the car, assuming his savings could earn interest at 4% per annum? (ii) What will be the principal balance on the vehicle loan after 3 years of payments?
(iii) How much interest would John have paid after 3 years of payments?
(iv) What will be the balance on the retirement account on John’s 65th birthday?
