Question

Sam​ Hinds, a local​ dentist, is going to remodel the dental reception area and add two new workstations. He has contacted​ A-Dec, and the new equipment and cabinetry will cost $22,000. The purchase will be financed with an interest rate of 9% loan over 8 years. What will Sam have to pay for this equipment if the loan calls for semi-annual payments and monthly payments. Compare the annual cash flows of the two statements. Why does the monthly payment plan have less total cash outflow each year?

Matt Johnson delivers newspapers and is putting away $50 at the end of each quarter from his paper route collections. Matt is 13 years old and will use the money when he goes to college in 5 years. What will be the value of Matt's account in 5 years with his quarterly payments if he is earning 7% (APR), 10.5%, and 13.5%?

Answer 1

1)

If semi-annual payments are made, $22,000 has to be repaid in lesser installments. So higher amounts are paid to pay-off the loan in same years for lesser payments per year.