Question

Alan wants to buy a new TV at $500, but he is missing $15. Jessica promised...

  1. Alan wants to buy a new TV at $500, but he is missing $15. Jessica promised that if he gave her $100 this month, she would pay him back $125 the next month. After a month, Alan receives his money back, but the TV price has increased by 6%.
    1. What is the nominal interest rate on this loan?
    2. What is the real interest rate on this loan?

Hint: you can use a CPI of 100 for the first month as the base.

  1. Can Alan buy his TV in the end?
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Nominal intrest on the loan = (total repayment - initial loan / initial loan)*100

=(125-100 /100)*100 = 25%

Real interest rate on loan = nominal interest rate - rate of inflation

rate of inflation = (CPI current moneth- CPI last month / CPI last month)*100

= (106-100 /100)*100 = 6%

Thus, real interest rate = 25 - 6 = 19%

Total money with Alan after a month = 485 - 100 + 125 = 510

Cost of TV after a month = 1.06*500 = 530

Thus, Alan can not buy the TV in the end

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Derek decides to buy a new car. The dealership offers him a choice of paying $555.00...
Derek decides to buy a new car. The dealership offers him a choice of paying $555.00 per month for 5 years (with the first payment due next month) or paying some amount today. He can borrow money from his bank to buy the car. The bank requires a 6.00% interest rate. What is the most that he would be willing to pay today rather than making the payments? Derek plans to buy a $27,733.00 car. The dealership offers zero percent...
Bucky Bavasi just bought a new TV that cost $1,500. He plans to finance the purchase...
Bucky Bavasi just bought a new TV that cost $1,500. He plans to finance the purchase with his new credit card which has an 18% nominal interest rate. The minimum payment on the card is $24.16 per month. If he makes the minimum payment and makes no other charges, how many months will it take before he pays off the card?
3. Base year 2017 Housing $13,930 $20,705 Food $9,552 $9,895 Other $17,164 $22,220 a. Above is...
3. Base year 2017 Housing $13,930 $20,705 Food $9,552 $9,895 Other $17,164 $22,220 a. Above is the CPI spending of certain country in the base year and in 2017. Use this data to calculate the CPI in 2017. b. Suppose john earned $26,000 in the base year and he earned $37,500 in 2017? Have his real wages increased , decreased or stayed the same? c. If the CPI in 2018 is 142, what is the rate of inflation I'm 2018?...
Toby wants to buy a dirt bike in 5 years. If he saves $700 per month,...
Toby wants to buy a dirt bike in 5 years. If he saves $700 per month, what is the purchase price of the bike that he can afford in 5 years if he can receive an annual nominal interest rate of 3% compounding monthly in to a savings account?
My friend Steve wants to buy something nice for himself. He doesn't know want he wants...
My friend Steve wants to buy something nice for himself. He doesn't know want he wants yet but he is thinking of spending $1,000 on it or more. He makes $500 a month and has a monthly living expense of $325. He also has a lot of bi-monthly subscription payments which costs him $450 every other month ($450 is the bimonthly expenses) . He wants to know when he will be able to buy want he wants and still be...
A homeowner is looking to buy a home in Marvin Gardens. The most he can afford...
A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If mortgage rates are 6.25% for a 30-year fixed-rate mortgage, how large can his mortgage be? If his parents give him $20,000 for a down payment, what is the most he can pay on a house...
Derek decides to buy a new car. The dealership offers him a choice of paying $532.00...
Derek decides to buy a new car. The dealership offers him a choice of paying $532.00 per month for 5 years (with the first payment due next month) or paying some $28,528.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options? ( round to 3 decimal places as a percentage). (i.e 1.234%).
A homeowner is looking to buy a home in Marvin Gardens. The most he can afford...
A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If his parents give him $20,000 for a down payment, what is the most he can pay for a house with a 15-year mortgage if the interest rate is 5.50 percent?
Derek decides to buy a new car. The dealership offers him a choice of paying $583.00...
Derek decides to buy a new car. The dealership offers him a choice of paying $583.00 per month for 5 years (with the first payment due next month) or paying some amount today. He can borrow money from his bank to buy the car. The bank requires a 5.00% interest rate. What is the most that he would be willing to pay today rather than making the payments?
Jack wants to buy a boat today today but has realised that if he takes out...
Jack wants to buy a boat today today but has realised that if he takes out a loan he can only repay $1200 quarterly, with payments made at the beginning of each quarter, over the next 10 years. How much can he spend on his boat today if the interest rate is 11.6% per annum compounded quarterly? Select one: a. $7692.30 b. $28191.63 c. $29009.19 d. $6892.74
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT