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
ADVERTISEMENT
##### Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

ADVERTISEMENT