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1.If demand is inelastic, does a drop in price raise or lower total expenditure by buyers? Explain why, using the meaning of “inelastic”.
2.Mr X borrowed from Pagbig Fund House and Lot worth 1.6 M. at 7.5% effecive interest. He will amortized the loan in 20 years equal monthly payments. What is this monhtly payment? What will be the peresent worth of his first 5 years of monthly payments? The Future worth of all his 5 years monthly payments. If he decide to pay the entire loan after the 5 years monthly installment? How much will he pay?
1.If demand is inelastic, when price drops the total expenditure by buyers decreases. In case of inelastic demand the the value of price elasticity of demand is lower than one (Ed<1). It means that if prices decreases by 50% then in response to the price changes the quantity demanded increase by lower than 50%. Due to which when price drops the total expenditue decreases. In addition, elasticity measures the degree of responsiveness of demand to change in prices of the commodity. So, inelastic means quantity demanded doesn't change much if prices changes.
2.
|
Loan Amount |
1.6 M |
|
Rate of Interest |
7.5% |
|
Tenure |
20 Years |
Monthly Payment towards Loan
The month payment will be from Year 1 will be =1,28,895
& The yearly payment will be 15,46,739
Present value of first 5 years monthly payments After using the formula
The PV (present value) of the monthly payments of 1,28,895 for 5 years will be 6,432,544.70
Future value of all his 5 years of monthly payment After using the formula
The FV (Future value) of the monthly payments of 1,28,895 for 5 years will be 9,288,865.87 Repayment of the loan after 5 year After paying off the loan for 5 years, the remaining balance of the loan (principal amount) which is left to be paid is 1,39,04,336.
please see the attached file.
