Question

In: Finance

You plan to buy a car in one year. It will cost $15,000 at that time....

You plan to buy a car in one year. It will cost $15,000 at that time. You now have $5,000 in a bank that pays 12% compounded monthly. You will save for the car by making monthly deposits in the bank for the next 12 months. How much will you have to deposit each month to have enough money in total to make the purchase?

Select one:

a. $738.50

b. $835.18

c. $769.43

d. $682.80

Karl has $100,000 in student loans at 6% compounded monthly. How much will Karl's monthly payment be in order to pay off the loan in 10 years?

Select one:

a. ​$610

b. ​$13,587

c. ​$9,777

d. ​$1,110

Solutions

Expert Solution

The question is solved in two parts. Find the future value of $5,000 deposited in the bank has to be calculated. Next, the monthly deposit needed to make the payment for the car is calculated.

Future value of $5,000 deposited in the bank:

The future value of 5,000 deposited in the bank is calculated by entering the below in a financial calculator:

PV= -$5,000; I/Y= 1; N= 12

Press CPT and N to calculate the future value.

The future value of $5,000 deposited in the bank is 5,634.13

The balance money required for purchasing the car:

$15,000 - $5,634.13= 9,365.87

2.Monthly deposit for car purchase:

FV= 9,365.87; N= 12; I/Y= 1

Press CPT and N to calculate the monthly deposit.

The monthly deposit needed to make the payment for the car is $738.49.

Therefore, the answer is option a.

2.Present value= $100,000

Interest rate= 6%/12= 0.50%

Time= 10 years*12= 120 months

The monthly deposit required to be made to pay off the student loan is calculated with the help of a financial calculator by entering the below in the calculator:

PV= -100,000; I/Y= 0.50; N= 120

Press CPT and PMT to calculate the monthly payment

The monthly deposit required to be made to pay off the student loan is $1,110.20.

Therefore, the answer is option d.

                                         


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