In: Finance
For a given time period and for the same future value amount, the higher the interest rate the lower the present value. T or F
You are trying to save up to buy a mountain bike worth $5,900. You can invest $200 a month in your bank that pays 4.4% interest on its accounts. How many years will it be before you have enough to purchase the mountain bike?
Tim has his heart set on buying a million-dollar house when he turns 40. He can invest $360,000 today into his “I want to be a millionaire bank account”. If he is 26 now, what interest rate must he earn to achieve his goal?
If the monthly payments on your amortized car loan is $677.37, and you borrowed $30,000 at 4%, how much principal did you paid off on your loan in the first month?
1. True. For a given time period and for the same future value amount, the higher the interest rate the lower the present value.
there is a inverse relationship between interest and present value thus when interest rates are higher the present will be lower
2. You are trying to save up to buy a mountain bike worth $5,900. You can invest $200 a month in your bank that pays 4.4% interest on its accounts. How many years will it be before you have enough to purchase the mountain bike?
Years Required = 1.67 years
3. Tim has his heart set on buying a million-dollar house when he turns 40. He can invest $360,000 today into his “I want to be a millionaire bank account”. If he is 26 now, what interest rate must he earn to achieve his goal?
Annual rate of return required = 7.57%
4. If the monthly payments on your amortized car loan is $677.37, and you borrowed $30,000 at 4%, how much principal did you paid off on your loan in the first month?
Principal paid in first month = Repayment - Loan amount * Interest rate /12
Principal paid in first month = 677.37 - 30000 * 4% /12
Principal paid in first month = 677.37 - 100
Principal paid in first month = $577.37