When time is factored in, it gives you the cost of money. $100.00 over 10 days v. $100.00 dollars over 10 weeks. Because of the time involved, you can see which will be more expensive.
The best way to play this scenario. I would put 5,000 down towards the purchase price. Get a loan for the car and take the 10,000 and do an option play like a covered call or strangled put. Take the monthly dividends from this play and cover the car note. At the end of the payment period. You would have a car that depreciated 3 years, the note is payed off and you still have the initial $10,000.
There has to be a new Tradition of Thinking to help create a more sophisticated consumer when it comes to the proper use of debt http://www.about.me/sobe123.
1. You've been saving up for a new car that you think costs $25,000. You already have $10,000 and you think that, with interest and additional savings, the $10,000 will grow to $20,000 in three years. Suddenly, the phone rings and a voice at the other end of the line tells you that you've won $5,000. You have the choice of collecting the $5,000 immediately, or collecting it in three years which will give you enough money to buy the car. What would you do? Assume that the price of the car stays constant over the three years and that available interest for bank savings is 3%.
?1a. You get the same prize but the choice changes to $5,000 now or $5,250 in three years. What do you do?
?1b. You get the same prize but the choice changes to $5,000 now or $5,500 in three years. What do you do?
?1c. Explain the time value of money using this scenario as an example.
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