Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Farid has a loan for $9300
Farid has a loan for $9300. He will make weekly payments (52 payments per year) of interest only for 6 years, and then his final payment will also include the initial amount of the loan.
a) If his weekly payments (except the last) are $12.1101, what is the effective annual interest rate?
Farid is planning to pay accumulate the money to pay off the loan by making regular deposits (at the end of each period) in a sinking fund paying an effective annual rate of 5% per year.
b) If he makes weekly deposits (52 weeks in a year), how much is each deposit?
c) If he makes monthly deposits, how much is each deposit?
d) The answer to part c) is more than 4 times the answer to part b).
True
False
Expert Solution
a). Computation of the effective annual interest rate (EAR):-
Weekly interest rate = Weekly payment / Loan amount
= $12.1101 / $9,300
= 0.13%
Effective annual interest rate = (1 + Weekly interest rate)^n-1
= (1+0.13%)^52- 1
= 1.0700 - 1
= 7.00%
b). We can calculate the weekly deposits by using the following formula in excel:-
=pmt(rate,nper,pv,-fv)
Here,
Pmt = Weekly deposits
Rate = 5%/52 = 0.0962% (weekly)
Nper = 6*52 = 312 periods (weekly)
PV = 0
FV = $9,300
Substituting the values in formula:
= pmt(0.0962%,312,0,-9300)
= $25.57
c). We can calculate the monthly deposits by using the following formula in excel:-
=pmt(rate,nper,pv,-fv)
Here,
Pmt = Monthly deposits
Rate = 5%/12 = 0.4167% (monthly)
Nper = 6*12 = 72 periods (monthly)
PV = 0
FV = $9,300
Substituting the values in formula:
= pmt(0.4167%,72,0,-9300)
= $111.03
d). The answer to part c) is more than 4 times the answer to part b because;
Answer in Part C / Answer in Part B = $111.03 / $25.57
= 4.34 times
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
