Question

debt of $42000 is repaid by making payments of $4500. If interest is 9% compounded monthly, for how long will payments have to be made at the end of every six months? What payment made at the end of each year for 18 years will amount to $48000 at 4.2% compounded monthly?

What payment made at the end of each year for 18 years will amount to $48000 at 4.2% compounded monthly?

Answer 1

Firstly, we will calculate the EAR of 9% compounded monthly:

EAR = ((1+(9%/12)^ 12)  - 1

= 9.38%

Now, we will calculate the EAR of 4.2% compounded monthly:

EAR = ((1+(4.2%/12)^ 12)  - 1

= 4.28%

We will use a BA 2 Plus financial calculator to calculate how long will payments have to be made at the end of every six months

I/Y (Interest per period) = 9.38%%/ 2 = 4.69%

PMT (Payment per period) = 4500

PV (Loan amount) = $42000

CMPT N

Number of semi-payments= 12.56

To calculate the amount of payment to be made at the end of each year to payoff 48000 at 4.2% compounded monthly in 18 years

I/Y (Interest per period) = 4.28%

N (Number of payments) = 18

PV (Amount accumulated) = $42000

CMPT PMT

PMT (Payment per year) = 3393.66