Mathematical economics
CASE STUDY 2
Cassie wants to be a first-time car owner. She is interested in purchasing a car in the next two years
but wants to get her financial life in order first. Current market values indicate that she can probably
get a Hyundai Accent for $100, 000. She would like to have a down-payment of approximately $60, 000
so she would only need to finance the last $40, 000.
a) i) She explores three (3) Financial Institutions to set up an account to save for her downpayment in 2 years. The Table below lists the rates and compounding periods for Certificates of
Deposit (CDs) offered by the 3 Financial Institutions. How can she tell which of these CDs has
the best return for her investment?
BANK RATE COMPOUNDED
Bank of Nova Scotia 10.94% Monthly
Citizens Green 10.96% Quarterly
Royal Advantage 10.95% Continuously
TABLE 1: Certificates of Deposit (CD)
ii) Based on your decision from part (i) and your understanding of Certificate of Deposits (CD),
how much must she invest initially to get $60, 000 at the end of the 2 years.
b) Based on the data provided in Table 2 below, choose a Financial Institution to accept for a Car
Loan. Discuss any considerations Cassie may need to make her decision.
BANK RATE COMPOUNDED
Scotia Bank 6.25% Monthly for 72 months
Republic Bank 5% APR no down-payment Monthly for 84 months
First Citizens’ Bank 4.5% APR no down-payment
4.4% APR with 5% downpayment
Monthly for 84 months
TABLE 2: Financial Institutions Interest Rates for Car Loansc) i) Cassie borrows $40, 000 to finance the difference needed to purchase the car. She agrees to repay in
24 equal monthly payments at R% interest per month on the unpaid balance (interest based on your
decision from part b).
▪ How much of each monthly payment is used for interest and how much is used to
reduce the unpaid balance?
▪ Construct an Amortization Schedule to illustrate this information.
Case Study – Amortization Schedule (2021).xlsx
ii) What are the benefits for Cassie for looking at a possible Amortization Schedule beforehand?
d) Based on her car loan payment schedule, Cassie has $3200 monthly in extra discretionary funds that she
would like to invest for retirement purposes. She decides to split the money into two annuities of an
equal amount, one paying 4.5% monthly and another paying 5.2% quarterly. What would her
investments look like at the end of 20 years? How much interest is garnered by each investment at the
end of the time period.
POSSIBLE SAMPLE FORMULAS:
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