Jenny borrowed $50,000 to purchase a family car. The terms ofher loan require making quarterly...

Jenny borrowed $50,000 to purchase a family car. The terms of her loan require making quarterly payments of $2,830.1323 over 7 years. The discount rate is 14% per annum (compounded quarterly). How much sooner will she pay off the loan if she makes quarterly payments of $3,793 instead? Round your answer to the whole number

a. 10 quarters

b. 12quarters

c. 20 quarters

d. 15 quarters

e. 18 quarters

Solutions

Expert Solution

First, we will find the number of payments with quarterly payments of $3,793

PMT = -3,793

PV = 50,000

I/Y = 14%/4 = 3.5%

FV = 0

CPT N

N = 17.98582227

N ~ 18

It takes 18 quarters to payoff the loan with quarterly payments of $3,793

Earlier it used to take 7 * 4 = 28 quarters to payoff the loan with quarterly payments of $2,830.1323

That is 28 - 18 = 10 quarters sooner

Option a is correct

jeff jeffy answered 2 years ago

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