Question

1. If $1,000 is deposited at the end of each month and earns 9% compounded monthly, will it take more than 42 months or less than 42 months for the total value of the deposits to reach a value of $50,000?

2. What is the approximate annual rate of interest will result in an investment doubling in value in eight years?

3. A $15,000 loan requires payments at the end of each month for five years. If the interest rate on the loan is 12% compounded monthly, calculate the size of each payment.        

4.     

Answer 1

1. fo find this, we have to use NPER function in EXCEL

=NPER(rate,pmt,pv,fv,type)

Here the interest is compounding monthly

rate=9%/12=0.75%

pmt=1000

pv=0

fv=50000

=NPER(0.75%,-1000,0,50000,0)

NPER= 42.62

It takes more than 42 months

2. Assume initial investment is $100. It has to be doubled to $200 in 8 years. the interest rate can be found using RATE function in EXCEL

=RATE(nper,pmt,pv,fv,type)

=RATE(8,0,-100,200,0)

RATE=9.05%

The annual interest rate=9.05%

3. this can be found using PMT function in EXCEL

=PMT(rate,nper,pv,fv,type)

here the payments are monthly

rate=12%/12=1%

nper=12*5=60

pv=-15000

fv=0

=PMT(1%,60,-15000,0,0)

PMT=$333.67

Each month payment=$333.67