
Home Work Assignment 2for MSIS 220 sections 10 and 20Last modified on Due Nov 11 1998 in class 
Note: 
You are to hand in all three projects in a single floppy disk. Make sure to



Overview 
A small company has certain amount of budget to buy computers and vans. Specifically the company needs 10 computers and three vans. There are a number of ways to finance the purchase of computers and vans. Here are is the list:
In this assignment you are going to look at various scenarios for interest rates and make a decision as to which option is the best. General comment 1: In order to compare two or more monthly payments over the same period of time, a device named "present value analysis" may be used. The idea is simple. We all agree that if you have a choice to own $100 now as opposed to $100 in a year, we choose to have it now. In other words the $100 in a year is less valuable than the $100 now. But what is its value now? $95? $90? To determine that economists use "discount rate" which is essentially the same as interest rates. If discount during the next year is say 15%, then today’s $100 will be worth 100´ (1+0.15)=$115. Or said it conversely, "the present value of $115 in a year is $100". Thus the present value of $100 in a year is 100¸ (1+0.15)=$86.96. 


Project 1 
Open Excel and from the web site: http://karush.rutgers.edu/CLASSES/98fallMIS220/Homeworks/hw3dat1.xls obtain the raw data and import it to your workbook. Call the workbook "rawdata". As you can see this workbook contains the following data about computers and vans and other prices and rates:
Create a separate workbook for each possible outcome:
In each work book drill the following information:
Now first fill out the Cash worksheet. The present value of the cash is itself. Thus if you pay $4000 upfornt the present value is $4000. 


Project 2 
Now Fill out the monthly payment for the fixed rate loan. Here is how you calculate the monthly payment. We have the following data:
First if the annual interest rate is R, then the periodic interest rate is r=R/N. Suppose you borrowed C dollars. Then, at the end of the first period you owe C(1+r) and you pay a payment of p (which is to be determined.) Thus you owe only C(1+r)p. At the end of the second period you owe [C(1+r)p](1+r)p=C(1+r)^{2}p(1+r)p after you pay another p. At the end of the third period you owe
Continuing this pattern we see that at the end of the k^{th} period you will owe C(1+r)^{k }p[(1+r)^{k1}+…+1]=C(1+r)^{k}p[(1+r)^{k}1]/r At the very end TN has passed and at that time you should owe zero: C(1+r)^{NT}p[(1+r)^{NT}1]/r=0 Solving this for p we get: Use formulas i. and ii. And fill out the columns for "monthly payment" (which is fixed throughout) and "Balance remaining". For fixed rate worksheet add two additional columns called "Interest this month" and fill it out. Notice that at the beginning of the k^{th} month, since you owe C(1+r)^{k1}p[(1+r)^{k1}1]/r The interest payment is r times this amount. 


Project 3 
To be given by soon. Stay tuned ….. 
Project 4 
To be given by soon. Stay tuned ….. 
Project 5 
To be given by soon. Stay tuned ….. 
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