Question

1. You need to amortize a 10 year loan with a principal (lump sum value) of $200,000 into a uniform payment stream. The APR on the loan is 3%. What is the associated monthly payment? (round your answer)

2. What is the price of a perpetuity making payments of $1,000 per year if the discount rate if 4%? (round your answer to two decimal places if necessary)

~ PLEASE ANSWER BOTH QUESTIONS. THANK YOU.

Answer 1

1.Information provided:

Present value= $200,000

Time= 10 years*12= 120 months

Interest rate= 3%/ 12= 0.25% per month

The question is solved by computing the monthly payment.

Enter the below in a financial calculator to compute the amount of monthly payment:

PV= -200,000

N= 120

I/Y= 0.25

Press the CPT key and PMT to compute the amount of monthly payment.

The value obtained is 1,931.21.

Therefore, the amount of monthly payment is $1,931.21.

2.The price is calculated by computing the present value of the payments.

Present value of the perpetuity payment each year= annual payment/discount rate

= $1,000/ 0.04

= $25,000.

In case of any query, kindly comment on the solution.