Question

In: Finance

8. You want to buy a car, and a local bank will lend you $25,000. The...

8. You want to buy a car, and a local bank will lend you $25,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 11% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.

Monthly loan payment: $  

EAR:   %

10. Find the interest rates earned on each of the following. Round your answers to the nearest whole number.

  1. You borrow $74,000 and promise to pay back $523,603 at the end of 14 years.

      %

  2. You borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years.

      %

12. Find the present values of these ordinary annuities. Discounting occurs once a year. Do not round intermediate calculations. Round your answers to the nearest cent.

  1. $400 per year for 14 years at 14%.

    $  

  2. $200 per year for 7 years at 7%.

    $  

  3. $800 per year for 7 years at 0%.

    $  

  4. Rework previous parts assuming they are annuities due.

    Present value of $400 per year for 14 years at 14%: $  

    Present value of $200 per year for 7 years at 7%: $  

    Present value of $800 per year for 7 years at 0%: $  

13. What is the present value of a $900 perpetuity if the interest rate is 3%? If interest rates doubled to 6%, what would its present value be? Round your answers to the nearest cent.

Present value at 3%: $  

Present value at 6%: $  

14. You borrow $195,000; the annual loan payments are $18,980.59 for 30 years. What interest rate are you being charged? Round your answer to the nearest whole number.

%

Solutions

Expert Solution

8.
Monthly loan payment: =25000*(11%/12)/(1-1/(1+11%/12)^60)=543.5605768

EAR: =(1+11%/12)^12-1=11.57%

10. Find the interest rates earned on each of the following. Round your answers to the nearest whole number.

You borrow $74,000 and promise to pay back $523,603 at the end of 14 years.
=(523603/74000)^(1/14)-1=15.00%

You borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years.
=RATE(5,-2684.80,9000)=15.00%

12. Find the present values of these ordinary annuities. Discounting occurs once a year. Do not round intermediate calculations. Round your answers to the nearest cent.

$400 per year for 14 years at 14%.
=400/14%*(1-1/1.14^14)=2400.828601

$200 per year for 7 years at 7%.
=200/7%*(1-1/1.07^7)=1077.85788


$800 per year for 7 years at 0%.
=800*7=5600

Rework previous parts assuming they are annuities due.

Present value of $400 per year for 14 years at 14%: =2400.828601*1.14=2736.944605

Present value of $200 per year for 7 years at 7%: =1077.85788*1.07=1153.307932

Present value of $800 per year for 7 years at 0%: =800*7=5600

13. What is the present value of a $900 perpetuity if the interest rate is 3%? If interest rates doubled to 6%, what would its present value be? Round your answers to the nearest cent.

Present value at 3%: =900/3%=30000

Present value at 6%: =900/6%=15000

14. You borrow $195,000; the annual loan payments are $18,980.59 for 30 years. What interest rate are you being charged? Round your answer to the nearest whole number.
=RATE(30,-18980.59,195000)=9.00%


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