Question

2. Suppose you borrow $20,000 at an 18 percent simple interest but must repay your loan in 12 equal monthly payments.

a. Find the APR for this loan.

b. What is the corresponding EAR?

3. Suppose you deposit $20,000 in a savings account. After 210 days, you withdraw your funds. If the bank paid you $340 in interest for the 210-day period, what is your APY?

4. Suppose that the house of your dreams costs $1,200,000. You manage to scrap a 20 percent down payment. You borrow the rest from a bank. The terms of the loan are: ? 30 years ? 4.5 percent ? Monthly payments

a. Find the amount of each monthly payment.

b. Suppose you decide to sell the house after 12 years: (1) What is the loan balance at the end of 12 years? (2) What is the amount of your total payments over the 12 years? (3) What is the amount of your total principal payments over the 12 years? (4) What is the amount of your total interest payments over the 12 years?

c. Use Excel to set up an amortization table.

Answer #1

2/

a) The nominal APR is the simple-interest rate (for a year). So APR for this loan is equal to 18%.

b) The effective APR (EAR) is the fee+compound interest rate (calculated across a year). Since no fee has been mentioned for the loan and the loan will be paid in one year so compound interest rate is equal to simple interest rate. Effective APR (EAR) = 18%

3/

APY = (Interest * 100 * 365) / (Principal * number of
days)

= (340 * 100 * 365) / (20000 * 210)

= 2.955%

4/

a) Amount of each monthly payment = 4864

b) (1) Loan balance at the end of 12 years = 699,408

(2) Amount of your total payments over the 12 years = 4864 * 12 *
12 = 700,416

(3) Amount of your total principal payments over the 12 years =
260,592

(4) Amount of your total interest payments over the 12 years =
495,400

2. Suppose you borrow $20,000 at an 18 percent simple interest
but must repay your loan in 12 equal monthly payments.
a. Find the APR for this loan.
b. What is the corresponding EAR?

Suppose you borrow $20,000 and then repay the loan by making 12
monthly payments of $1,492.92 each. What rate will you be quoted on
the loan?

You go to your local bank to borrow $5,680 to buy a used BMW.
Your loan will require monthly payments for 4 years at 6.00 percent
interest compounded monthly.
What is the amount of your monthly loan payment?

You want to borrow $22,425. You must repay the loan in 12 years
in equal monthly payments and a single $2,894 payment at the end of
12 years. Interest rate is 14% nominal per year.What will be the
loan balance immediately after the 50th payment?

You borrow $70,000 today at an interest rate of 5.82 percent.
You will repay the loan as an annuity over 6 years, with the first
payment taking place one year from today. Calculate the interest
portion of your second payment

You borrow $185,000 to buy a house. The mortgage interest rate
is 7.5 percent and the loan period is 30 years. Payments are made
monthly. What is your monthly mortgage payment?
$1,293.55
$953.70
$1,083.78
$1,153.70
$1,398.43

You borrowed $20,000 from a bank at an
interest rate of 12%, compounded monthly.
This loan will be repaid in 60 equal monthly
installments over 5 years. Immediately after
your 30th payment if you want to pay the
remainder of the loan in a single payment, the
amount is close to:

Problem 5-46 EAR of Add-On Interest Loan (LG7, LG8)
To borrow $1,550, you are offered an add on interest loan at 8.3
percent with 12 monthly payments. Compute the 12 equal payments.
(Round your answer to 2 decimal places.)
Equal payments
$
Compute the EAR of the loan. (Do not round intermediate
calculations and round your answer to 2 decimal
places.)
EAR
%

You want to borrow $44,536. You must repay the loan in 6 years
in equal monthly payments and a single $3,319 payment at the end of
6 years. Interest rate is 3% nominal per year.
What will be the loan balance immediately after the
32th payment?

Loan
amortization)
To buy a new house you must borrow
$ 165,000
To do this you take out a
$ 165,000
30-year,
12
percent mortgage. Your mortgage payments, which are made at the
end of each year (one payment each year), include both principal
and
12
percent interest on the declining balance. How large will your
annual payments be?
The amount of your annual payments will be
$nothing .
(Round to the nearest cent)

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