Question

Q1: Jill wants to buy a car but needs to calculate how much she can afford to borrow. The maximum she can repay each month-end is $560 per month and the bank has indicated it will charge a fixed 8.0% p.a compounding monthly. If she takes a loan for 5 years how much can she afford to borrow? (Do not use the $ sign or commas; include cents e.g 24500.09)

Q2: Payments of $200 per month are deposited into a fund at the end of each month for 11 years. If interest is 11.7% p.a. compounding monthly, the size of the fund at the end of 11 years will be (to nearest dollar but don’t include $ sign or commas):

Answer 1

We will have to use a financial calculator to solve this question

Question 1 - We have the following infortmation available

PMT = 560

I/Y = 0.666 ............. (8/12)

N = 60 ......... (12 month * 5 Years)

Now we will enter the following information in a financial calculator and then press CPT PV

We will get the PV as 27618.06

Jill can borrow 27618.06 today

Question 2 - - We have the following infortmation available

PMT = 200

I/Y = 0.975 ............. (11.7/12)

N = 132 ......... (12 month * 11 Years)

Now we will enter the following information in a financial calculator and then press CPT FV

We will get the FV as 53320.96

Size of the fund at the end of year 11 = 53320.96