In: Finance
Instructions | Complete the following problems using either a financial calculator or a spreadsheet program. Do not use interim rounding, state your answers as positive values, to two decimal places for dollar or period values and four places for percentages stated as decimals; do not label answers with symbols such as $ or %. For example, 10.5% should be input as .1050. |
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1. Jacinda Herschel wants to buy a car and determines she can afford to pay $367.47 a month for a 3 year loan. The rate on such a loan is 0.0528. How much money can Jacinda borrow?
2. Brian Burkhardt is planning to purchase a home and expects to borrow $704,522 to mortgage the purchase, Given a 30-year mortgage has a rate of 0.0273, the monthly payment Brian can expect to pay is:
3. An investment with semi-annual compounding has an effective rate of 0.1119. The nominal rate is:
Part 1:
Max Loan = PV of EMIs
PV of Annuity:
Annuity is series of cash flows that are deposited at regular
intervals for specific period of time.
PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods
Particulars | Amount |
Cash Flow | $ 367.47 |
Int Rate | 0.4400% |
Periods | 36 |
PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 367.47 * [ 1 - [(1+0.0044)^-36]] /0.0044
= $ 367.47 * [ 1 - [(1.0044)^-36]] /0.0044
= $ 367.47 * [ 1 - [0.8538]] /0.0044
= $ 367.47 * [0.1462]] /0.0044
= $ 12209.61
Max Loan that can be taken today is $ 12209.61
Part 2:
Particulars | Amount |
Loan Amount | $ 7,04,522.00 |
Int rate per Month | 0.2275% |
No. of Months | 360 |
EMI = Loan Amount / PVAF (r%, n)
Where r is Int rate per Month & n is No. of Months
= $ 704522 / PVAF (0.0023 , 360)
= $ 704522 / 245.5901
= $ 2868.69
PVAF = SUm [ PVF(r%, n) ]
PVF(r%, n) = 1 / ( 1 + r)^n
r = Int rate per period
n = No. of periods
How to calculate PVAF using Excel:
=PV(Rate,NPER,-1)
Rate = Disc Rate
NPER = No.of periods
Part 3:
Particulars | Amount |
Effective Annual rate | 11.1900% |
No. of periods per anum | 2.0000 |
APR = [ [ ( 1 + EAR )^( 1 / n ) ] - 1 ] * n
= [ [ ( 1 + 0.1119 )^( 1 / 2 ) ] - 1 ] * 2
= [ [ ( 1.1119 )^( 1 / 2 ) ] - 1 ] * 2
= [ [ 1.0545 ] - 1 ] * 2
= [ 0.0545 ] * 2
= 0.109
= 10.9 %
Annual int rate ( APR ) is 10.9 % per anum