Alma is considering buying a new car. She wants to spend about $20 000. She has $5000 in savings and a spare $500 per month to either save or use on repayments.

1. Suppose Alma invests the $5000 in a 6 month Term Deposit Account. She also opens a Cash Management Account and saves $500 per month in it. Investigate how long it will take her to have $20000 saved. You could investigate the interest rates offered by your local banks, or make a reasonable estimate of the rates and fees. Detail your assumptions and calculations, including interest earned. You may or may not want to consider tax.


2.Now suppose Alma wants to buy a $20000 car now. She has two choices:
Personal Loan:available at 11% p.a. over 3 years or Paying on terms: the dealer will accept a 10% deposit and $420 per month over 5 years.
Investigate the costs involved in each option. Detail any assumptions you make, such as the size of the personal loan, and calculate the total costs and interest paid. Which option would you recommend and why?

3 Investigate a combination of saving and borrowing. For example, what would happen if Alma saved for 6 months or a year and then borrowed money? Detail any assumptions you make and set out all calculations.


4. Based on your investigations in 1, 2 and 3, how would you advise Alma to buy the car? Clearly explain your reasons.