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  3. 39.) extravagant vs conservative: two individuals

39.) Extravagant vs Conservative: Two individuals are given an early inheritance of $50,000 in their...

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39.) Extravagant vs Conservative: Two individuals are given an early inheritance of $50,000 in their early 30's. .One takes the money and buys a $50,000 new car with $30,000 down and the remaining $20,000 financed at 5% simple add-on interest. The length of the loan is 5 years, $20,000 they put it into a risky high-yield fund which earns 10% interest the first year but drops its earnings by 2% for each subsequent year for the next 4 years (10%, 8%, 6%, ) due to a bad market. Further, the new vehicle that was purchased looses 10% of its value every year for the first 5 years of ownership. What is the $50,000 gift worth after all these events happen after 5 years? (Hint: Parse the money activities out and don't forget that depreciation is a "decaying model" where the base is less than one.) With the remaining 40.) The other inheritor goes out and finds a nice looking certified 4-year old version of the same car and buys it out right without a loan for $30,000. With the remaining $20,000, they invest in safe bonds at a guaranteed 5% per annum. Their auto purchase also depreciates by 10% every year. After 5 years, are they in better shape financially than the individual in #397 State the difference

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