Question

I was looking at the solution to the following question on this site. I could not...

I was looking at the solution to the following question on this site. I could not understand why use 12 when working out the NPER. Since the monthly payments start 1 month after should you not use 11?

Question 3. (a) A family member is thinking about funding his granddaughter’s university education in 8 years when she is expected to enrol at UWI, St. Augustine. He opens a special savings account, where he can receive a lump sum in 8 years. If he is desirous of receiving $60,000 in 8 years when his granddaughter is matriculating, how much would you advise him to deposit in the savings account monthly if annual interest rate is 6%? Show all working.

(b) As a prospective home-owner, you have researched the housing market and you are attracted by two offers. Two $380,000 real estate properties with two different Mortgage (amortization) schedules.

Schedule A requires a down payment of 10% while Schedule B requires a down payment of 12%. If the mortgage is over a period of 20 years at an annual mortgage rate of 7%, what would be the monthly repayment amount for both schedules? Assume that the monthly repayment starts 1 month after the mortgage contract is signed and the down payment made. Show all calculations.

assumption monthly deposits are end of the month
total payments period n = 8*12 n or NPER = 96
Rate given as 6% or 0.06 hence monthly rate is 6%/12 = 0.005
Future value / Goal is 60000
Find Monthly payments/ annuity (PMT)
Future value of Ordinary Annuity formula
annuities* (((1+i)^n)-1) / i
Substituting values we can find annuity / montthly payments
OR
Method 2
You can use the PMT function in excel
PMT (Rate, NPER, PV, FV, Type)
PMT(6%/12,8*12,,60000)
488.49 is the monthly depsoit to achiev the goal of 60000 in 8yrs
b
Schedule A
total payments period n = 20*12 n or NPER = 240
Rate given as 6% or 0.06 hence monthly rate is 7%/12 = 0.005833333
Present value is Loan = purchase cost - down payment = 342000
Find Monthly payments/ annuity (PMT)
PMT = Present Value / [ 1- ( 1+r)^-n]/ r
Substituting values we can find annuity / montthly payments
OR
Method 2
You can use the PMT function in excel
PMT (Rate, NPER, PV, FV, Type)
PV is entered as a negative figure
PMT(7%/12,12*20,-342000)
2651.52  is the monthly repayment
The only change in Schedule B is the present value of loan
Present value is Loan = purchase cost - down payment = 334400
PMT(7%/12,12*20,-334400)
2592.60 is the monthly repayment

Homework Answers

Answer #1

assume a more easy case, let's say instead of monthly payments there were semi-annual payments starting at the end of 6 months from now and the period for semi-annual payments was 2 years

NPER would be calculated = 2*2 = 4

for period of 2 years:

at the end of 0.5 years : payment 1

at the end of 1 year : payment 2

at the end of 1.5 year : payment 3

at the end of 2 years : payment 4

so we can see that altogether there are 4 payments within these 2 years which is the same as calculated through NPER

the same case applies to the above questions

No. of payments would be = NPER = no. of years*12 ( in case of monthly payments)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Please use Excel to answer the following TVM questions. You can use this spreadsheet to set...
Please use Excel to answer the following TVM questions. You can use this spreadsheet to set up your calculations if you so desire. Unless indicated otherwise, assume that all of the problems are ordinary annuities (payment made at the end of the period).        Part 3 I am going to buy a car. I will finance the whole purchase (no down payment) with a new car loan that has a 6-year term. My monthly payments will be $392/mth and the annual...
Please create a Variable Interest Rate Loan Amortization schedule with the columns: Year, Amount owed on...
Please create a Variable Interest Rate Loan Amortization schedule with the columns: Year, Amount owed on the principal at the beginning of the year, Annuity payment, Interest portion of the annuity, Repayment of the principal portion of the annuity, outstanding loan balance at year end For the following: You obtain a $6,000 loan from a furniture dealer at a variable interest rate. The loan payments is adjusted every year based on the annuity amount implied by interest rate of year...
Question 3. (10 marks) (a) A family member is thinking about funding his granddaughter’s university education...
Question 3. (a) A family member is thinking about funding his granddaughter’s university education in 8 years when she is expected to enrol at UWI, St. Augustine. He opens a special savings account, where he can receive a lump sum in 8 years. If he is desirous of receiving $60,000 in 8 years when his granddaughter is matriculating, how much would you advise him to deposit in the savings account monthly if annual interest rate is 6%? Show all working....
1. Find the present value of the annuity given the following. a) 36 monthly payments of...
1. Find the present value of the annuity given the following. a) 36 monthly payments of $250 in an account where the interest rate is 3.5% compounded monthly. PMT = 250, i = 0.035/12= 0.002916, n = 36 X 12 = 36 ?? = ( 250[1-(1+0.002916)-342])/0.002916 PV = ( 24.879080)/0.002916 PV = 8531.920438 = $8,531.90 b) 60 weekly payments of $125 in an account where the interest rate is 5% compounded weekly. PMT = 125, i = 0.05/52= 0.000961, n...
Nalu and Kamaile take-out a mortgage in the amount of $260000 to purchase an apartment as...
Nalu and Kamaile take-out a mortgage in the amount of $260000 to purchase an apartment as their principal place of residence. They are able to obtain a 15-year mortgage at a fixed rate of 6%. Below, you will be asked for the amount of their monthly payment and for a aggregated amount of interest that they paid. Clearly, this is a TVM (time value of money) problem, so get started by completing the table of "TVM Basic Data" c n...
As per The Economist (June 24, 2017), the Argentinian government issued its first 100‐year bond, with...
As per The Economist (June 24, 2017), the Argentinian government issued its first 100‐year bond, with cash flows denominated in dollars. The bond thus now matures in, for simplification purposes, 97 years. The current bond has a $1,000 face value and the following monthly, end‐ofmonth coupon payments: $10/ month for 47 years, $30/month for 20 years, and then $50/month for 30 years. As Argentina has defaulted on its bonds six times in the past 100 years, you decide that a...
How many years does it take for $1,000 grow to be $1,500, if interest rate is...
How many years does it take for $1,000 grow to be $1,500, if interest rate is 12% compounded monthly? BGN or END MODE ( choose one ) P/Y = N= ? I/Y= PV= PMT= FV= CPT , N = Can you explain how you computed it for compunded monthly. 2. How many years does it take for $1,000 to grow to be $1,500, if interest rate is 12%? BGN or END MODE ( choose one ) P/Y = N= ?...
I am having some trouble visualizing this present value question and have already put it on...
I am having some trouble visualizing this present value question and have already put it on a timeline, but it's still not clear. I think I may be making it more complex than it really is, but here is the question and then I will explain why I am having problems. At an annual interest rate of 6%, which would you prefer - three annual year-end cash flows of $250 each with the first cash flow one year from today...
You bought a house for 150,000.  The bank required a 20% down payment and gave you a...
You bought a house for 150,000.  The bank required a 20% down payment and gave you a 30-year mortgage loan for the remainder.  Assume an annual interest rate of 3.5% and a monthly repayment schedule.  What is your monthly payment?  After 18 years of payments, how much do you still owe?
Question 2 2a) Suppose a risk-free bond promises to pay $2,249.73 in 4 years.  If the going...
Question 2 2a) Suppose a risk-free bond promises to pay $2,249.73 in 4 years.  If the going risk-free interest rate is 3.5%, how much is the bond worth today?   Nper Rate PMT FV PV 2b) Suppose you can buy a U.S. Treasury bond which makes no payments until the bond matures 10 years from now, at which time it will pay you $1,000. What interest rate would you earn if you bought this bond for $585.43?   Nper PMT PV FV Rate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT