1. A guy borrows $7900 and wants to repay it $600 every sixmonths with the first
ID: 2660386 • Letter: 1
Question
1. A guy borrows $7900 and wants to repay it $600 every sixmonths with the first payment in 6 months. If the loan terms are 6%APR with semiannual compounding, how many payments will he need tomake to pay off the loan?
2. A guy buys a car for $21,000 and finances it with a fiveyear, 7% APR with monthly payments and compounding. How much of histhird payment goes toward repaying principal?
3. What is the value today of $4000 received each year foreverif the first cash starts two years from today? Assume a discountrate of 8%
Explanation / Answer
1.
7900 = 600*PVIFA(3,n)
79/6 = [1-(1.03^-n]/.03
n = 17 periods or 8.5 years
2.
21000 = PMT*PVIFA(7/12%,60)
21000 = PMT*50.502
PMT = 21000/50.502 = 415.82
I1 = 122.5
P1 = 415.82-122.5 = 293.32
Principal left = 21000*293.32 = 20706.68
I2 = 20706.68*7/1200 = 120.78
P2 = 415.82-120.78 = 295.04
Principal left = 20706.68-295.04 = 20411.64
I3 = 20411.64*7/1200 = 119.07
P3 = 415.82-119.07 = 296.75
3.
PV = 4000/(.08*1.08) = $46296.3
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