15) Verbal problems with interest rates. A) TD Bank ifoffering John a new car lo
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15) Verbal problems with interest rates. A) TD Bank ifoffering John a new car loan for S35.000 at an interest rate of 12.25%. His contract is for 8 years. a) What is the total amount of the loan for the car? Ap 5,000 C12.25( 35,000-C.IR25) ( 3 b) What is the monthly payment due? B) If you borrow $25,000 from Bank of America at an interest rate of 10.25% and no payments are made on the loan, what is the amount after 5 years if the loan is compounded quarterly? C) If you have a chance to open an ordinary annuity by making monthly deposits of $500 for a period of 2 years, how much will this annuity be worth when t matures at an rest rate of 5.25%?Explanation / Answer
A]a) Total amount of car loan = number of payments * size of payment = 8 * 12 * PMT(monthly interest rate,number of months,loan amount,0) = 8 * 12 * 561.41 = 53895.15
monthly interest rate = power(1+annual rate, 1/12) - 1
loan amount = 35000
b) monthly payment = 561.41
B] amount after 5 years = principal borrowed * power(1+quarterly interest rate,number of quarters)
=25000 * power(1+2.47%,5*4) = 40722.36
quarterly interest rate = power(1+annual interest rate,0.25)-1 = power (1+10.25,0.25)-1= 2.47%
C] annuity value = FV(monthly interest rate,number of months,monthly payment,present value,1) =244,701.21
monthly interest rate = power(1+annual rate, 1/12) - 1
number of months = 22 *12
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