BUSN BE450 - Assignment #1: Plan for Your Future Car Purchase

BUSN BE450 - Assignment #1 45 marks – 15% of Final Grade Submit in Canvas by Sunday, February 28th at 11:59 pm No late assignments or email submissions will be accepted Purpose of the Assignment Upon completion of this assignment, you will be able to: • Identify features of a used vehicle that affect your purchase decision; • Identify factors that affect the cost of automobile insurance; • Calculate the monthly amount of a car payment; • Calculate TDSR and determine whether you qualify for a car loan; and • Consider the implications of a vehicle purchase from both a risk management and wealth management perspective. Important: You must show all calculations for marks OR indicate the values used when using your BA II Plus calculator. ? Example: 12 = N ?? 5 = I/Y ?? 2,000 = PV ?? CPT PMT = -225.65 Therefore, the payment that would be needed is $225.65 Plan for your future car purchase! Assume that you have a goal of purchasing a used car after graduation. Completion of this assignment will require research and multiple calculations. 1. Select a used vehicle model year 2018 or older that you are interested in purchasing. While price is important, other factors must also be considered; such as reliability, cost of repair/maintenance, fuel efficiency, and factors which will affect your insurance premiums. a) You must submit a copy of the listing of the vehicle. Each student should have a different chosen vehicle. b) You must also provide a rationale for your choice of vehicle considering the factors listed above and others you consider important. State all of your assumptions in writing, with explanation/justification. c) Please provide evidence of your research and reference your sources. You may also need to do some additional research. (10 marks) ? 2. SCENARIO A: Assume a 10% down payment. Calculate the remaining loan amount (total price - 10% down payment). Calculate the loan payment on the remaining amount if paid monthly over 5 years, assume a car loan rate of 8% compounded monthly. SCENARIO B: 1) Instead of putting a 10% down payment down on your car, you decide to invest it. The car loan is now going to charge you at a rate of 9% compounded monthly for 5 years, since you must borrow the total value of the vehicle, calculate the new loan payment. 2) You invested the money you saved from not putting the 10% down payment on your car loan, into a fund that produced an interest rate of 12% compounded monthly over the same 5 years. What is the value of your invested money after the 5 years? 3) If you had to decide between Scenario A or Scenario B, which would you choose? Why? Explain your reasoning! (15 marks) 3. Make the following assumptions: Your future income = $45,000/year You pay $1000/month in rent You have a cell phone bill of $90/month You have a student loan payment of $250/month You have a VISA card with a $1000 limit and $1000 outstanding balance Car insurance will cost $4000/year Groceries cost you $100/week Gas will cost you $50/week Car loan from Scenario A: You have no other expenses. Calculate your TDSR given the above-mentioned assumptions and including the new loan payment you just calculated. (10 marks) Would you qualify for this purchase? (2 marks) 4. When TDSR exceeds the maximum allowable limit, what are two options that you could consider based on your spending above? (4 marks) 5. Your professor (who currently drives a practical, family-friendly Chevy Equinox) is going through a midlife crisis and announces to the class that he is going to buy a 2021 Rolls Royce r with a sticker price of over $300,000 and that will be the answer to all of life’s problems. Explain three concerns you have about this purchase from a wealth management perspective and what advice you would give to someone in this scenario. (4 marks) Additional instructions: • Submit assignments in Canvas by February 28th, 2020 at 11:59pm. • There are no extensions on this assignment. • Late assignments will not be accepted and will receive a grade of zero. • Email submission of assignments will not be accepted and will receive a grade of zero. • Submissions should be neat and professional. • Ensure that you include your name and student ID on your submissions. • Submissions will be scanned by Turnitin. • If plagiarism is suspected, you will receive a grade of zero at the very least!