1. Dinero Bank offers you a $56,000, four-year term loan an annual interest rate

Question

1. Dinero Bank offers you a $56,000, four-year term loan an annual interest rate of 7 percent. What will your annual loan payment be?

2. You want to have $68,000 in your savings account 11 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.30 percent interest, what amount must you deposit each year?

3.You want to buy a new sports coupe for $77,500, and the finance office at the dealership has quoted you a 5.9 percent APR loan for 48 months to buy the car.

a.What will your monthly payments be?

b What is the effective annual rate on this loan?

Explanation / Answer

Time =4yrs

Rate of interest = 7%

Future value = 0

Thus Yearly payments = $16532

2. Future value = $68000

Time = 11 yrs

Interest = 6.3%

Present value = $0

Thus yearly deposits = $4470.69

3. Present value = $77500

Interest = 5.9%

Time = 48 months

Interest per month = 4.8/12 = 0.4

Thus Monthly Payments = $1816.53

Total payments overt 48 months = $87193.85

Interest rate over 4 yrs = (87193.85-77500)/77500 = 12.5%

Effective annual rate = (1 +0.125)^(1/4) = 2.98%

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