Question

This week we will be studying the mathematics of finance. Most people take out a loan for making big purchases like a home or a car. People who have a balance on their credit card are borrowing money. Some investigation is often required to find the “Best Deal”. Please post your solution to one of the following problems: a) Calculate the amount of simple interest earned : $3,500 at 7% for 3 years b) Find the future value : $475 at 3.25% compounded daily for 5 years c) Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. Sears offers them an installment loan at 16 %( add-on rate). If the refrigerator at Sears costs $1,540 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 3 years, what is the monthly payment?

Answer 1

a)
Simple Interest = Principal Amount * Interest Rate * Number of Years of Deposit
= $ 3,500 * 7% * 3
= $735
b)
Compound Interest Calculation
Future value = Present Value * ( 1 + Interest rate / n ) ^ ( t*n)
= $ 475 ( 1 + .0325/365) ^ (365*5)
= $ 475 ( 1.00008904109) ^ 1825
= $ 558.8089
c)
Cost of Refrigerator		1,540
Add : Sales tax 5%		77
			1,617
So $1,617 has to be borrowed @add on rate 16% for 3 year monthly Installments
Total Interest to be paid on Such loan =	1,617 * 16% * 3
			=	$ 776.16
Pricipal Amount                                            =	$ 1,617
Total Payment = Principal + Interest     =    $ 2,393.16
Therefore, Monthly equal Installment =     $ 2393.16 / 36
			=	$ 66.48 approx