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1) Megan F takes out a $500,000 loan
1) Megan F takes out a $500,000 loan. The interest rate is 3% over 30 years, 20% down payment. How much total interest did Megan pay over the 30 years?
2) What's the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due, what would its future value be?
Expert Solution
1) Computation of the total interest:-
PV = $500,000*(1-20%)
= $400,000
FV = PV*(1+rate)^n
= $400,000*(1+3%)^30
= $400,000*2.42726
= $970,904.99
Total interest = Future value - Present value
= $970,904.99 - $400,000
= $570,904.99
2) We can calculate the future value of ordinary annuity by using the following formula in excel:-
=fv(rate,nper,-pmt,pv)
Here,
FV = Future value of ordinary annuity
Rate = 7%
Nper = 5 periods
Pmt = $300
PV = $0
Substituting the values in formula:
= fv(7%,5,-300,0)
= $1,725.22
We can calculate the future value of annuity due by using the following formula in excel:-
=fv(rate,nper,-pmt,pv,type)
Here,
FV = Future value of annuity due
Rate = 7%
Nper = 5 periods
Pmt = $300
PV = $0
Type = 1
Substituting the values in formula:
= fv(7%,5,-300,0,1)
= $1,845.99
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