Question

2a. An insurance company is offering quarterly payments of $820 for the next 9 years in exchange for a one-time payment of $18,000 today. What is the per annum rate of return on this offer? (Round to nearest 100th of a percent and enter your answer as a percentage, for example, as 12.34)

Answer:

2b. Poor Dog, Inc. borrowed $155,000 from the bank today. They must repay this money over the next 5 years by making monthly payments of $3775. What is the interest rate on the loan? (Round to nearest 100th of a percent and enter your answer as an annual percentage rate for example, as 12.34)

Answer:

2c. What would be the sum of all the payments made (i.e., total $s paid over the 30 years, ignoring time value) on the following house mortgage? Loan amount is $195,000 with an interest rate of 7.0% per annum, term of 30 years, and monthly payments. (Round to nearest penny and enter, for example, as 123456.78)

Answer:

Answer 1

2 a. Number of quarters =9*4 =36
Quarterly Payment =820
One Time Payment =18000
quarterly rate using financial calculator
N=36;PMT=820;PV=-18000;CPT I/Y =2.9636%
annual rate of return =4*2.9636% =11.85%

b. Number of months =12*5 =60
Monthly Payment =3775
Borrowed Amount=155000
quarterly rate using financial calculator
N=60;PMT=3775;PV=-155000;CPT I/Y =1.3391%
annual rate of return =12*1.3391% =16.07%

c. Loan amount is $195,000
interest rate per month = 7.0%/12
Number of months =30*12 =360
Monthly Payment =PV/((1-(1+r)^-n)/r) =195000/(((1-(1+7%/12)^-360)/(7%/12))=1297.3399

Sum of all payments =360*1297.3399 =467042.35