Andy would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car
The current price of the car Andy wants to buy is $22,000, and the dealer expects the price of a similar new car to be $24,000 in two years. If Andy can earn an annual interest rate of 3% on his money, should he buy the car now or wait for two years? Why? Note: Storage costs if Andy purchases the car are $0. Please limit your considerations to the factors offered in the answer choices.
A) Buy now because if Andy invests the $22,000 today it will only increase in value to $23,340, and this is less than the cost of his desired new car in two years.
B) Andy is indifferent because his $22,000 investment will be worth exactly $24,000 after two years.
C) Buy in two years because at $24,000 the car will cost less than the $24,385 Andy will have after investing the money for two years.
D) Buy in two years because $24,000 is a real deal for the car Andy wants.
Answer: A
Explanation: A) FV = PV*(1 + r)n = $22,000*(1.03)2 = $23,340
MODE = END
INPUT 2 3 -22,000 0 ?
KEY N I/Y PV PMT FV
CPT 23,340
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