1. Mary Singer borrowed $20,000 at an annual interest rate of 8% and paid off th

Question

1. 1. Mary Singer borrowed $20,000 at an annual interest rate of 8% and paid off the loan, principal and interest, after several years with a $30,000 check. The number of years she has had the privilege of using the money is _______________.
2. 2. You are planning to send your child to a summer camp in 9 months. The camp will cost you $1,200 at that time. You have decided to invest a lump sum of money now that will grow to $1,200 by the time it is needed. Assuming the money grows at a nominal annual interest rate of 12% compounded daily, how much money should you set aside now to have the funds available when needed?

1. Mary Singer borrowed $20,000 at an annual interest rate of 8% and paid off the loan, principal and interest, after several years with a $30,000 check. The number of years she has had the privilege of using the money is _______________. 1. Mary Singer borrowed $20,000 at an annual interest rate of 8% and paid off the loan, principal and interest, after several years with a $30,000 check. The number of years she has had the privilege of using the money is _______________. 2.

Explanation / Answer

Hi,

Please find the answers as follows:

Part 1:

PV = 20000 (indicates the presnet value of the loan)

FV = 30000 (indicates the value of loan at the time of payment)

PMT = 0 (indicates the amount of payment, not relevant in this case)

Rate = 8% (indicates the rate at which the amount has been borrowed)

Nper = ? (indicates the period for which the money has been used)

Number of Years = Nper(Rate,PMT,PV,FV) = Nper(8%,0,-20000,30000) = 5.268 or 5.27 Years

Answer is 5.268 or 5.27 Years.

Part 2:

FV = 1200 (indicates the value of at the time when money is needed)

Rate = 12%/365 (rate compounded on a daily basis, assuming 365 days in a year)

Nper = 9/12*365 (indicates the period after which the money is needed)

PMT = 0 (indicates the amount of payment, not relevant in this case)

PV = ? (indicates the amount to be set aside)

Amount to be Set Aside (with 365 Days in a Year) = PV(Rate,Nper,PMT,FV) = PV(12%/365,9/12*365,0,1200) = 1096.73

Answer is 1096.73

Thanks.

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