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4 July, 04:06

You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You decided to pay off the car loan and invest the difference. Now you no longer have a $350 per month car payment.

Suggest some ways you might use these additional funds. It would be wise to:

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  1. 4 July, 05:58
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    It would be wise to invest in an Annuity with monthly payment of $350.

    Explanation:

    You no longer have a $350 per month car payment; and you used to live well without this $350. So it's the best to use this $350 for an invesment.

    Annuity is a financial reserved for retirement. Assuming you will be retired in 10 years. Then you invest in an annuity now with:

    current rate: 6% ~ monthly rate 0.5%,

    Monthly payment of $350 (PMT)

    Tenor: 10 years (NPer = 120)

    you will have a future value in 10 years as below:

    In excel, FV (rate, Nper, PMT) = FV (0.5%,120.350) = $57,538

    Then when you're retired, you invest full $57,538 in an retirement annuity to receive a monthly amount for living expenses. Assuming the key factors as below:

    Monthly rate: 0.5%

    Tenor: 25 years ~ 300 months

    PV: $57,538

    The monthly amount to be received is PMT (rate, Nper, PV) = PMT (0.5%.300,$57,538) = $370

    You will receive about $370 for 25 years in every month of 25 years in retirement.
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Home » Business » You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You decided to pay off the car loan and invest the difference. Now you no longer have a $350 per month car payment.
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