Question

Please show work and formulas:

A: You deposit $100 for the next 15 years earning 10% per year. What would your balance be at the end of the 15 Years?

B: You borrow $100,000 for 18 years at an annual rate of 7%. What would be your fixed QUARTERLY loan payment?

C: For the loan in #5 above, what percent of your first payment would apply to the principal?

Answer 1

Answer A.

Annual Deposit = $100
Period = 15 years
Interest Rate = 10%

Future Value = $100*1.10^14 + $100*1.10^13 + $100*1.10^12 + .... + $100*1.10 + $100
Future Value = $100 * (1.10^15 - 1) / 0.10
Future Value = $100 * 31.77248
Future Value = $3,177.25

Answer B.

Amount borrowed = $100,000
Period = 18 years or 72 quarters
Annual Interest Rate = 7%
Quarterly Interest Rate = 1.75%

Quarterly Payment * PVIFA(1.75%, 72) = $100,000
Quarterly Payment * (1 - (1/1.0175)^72) / 0.0175 = $100,000
Quarterly Payment * 40.75645 = $100,000
Quarterly Payment = $2,453.60

answered by: anonymous