7. Suppose that you are planning to take a four-year loan of $200,000 for your program. The interest rate of this loan is 7% and its compounds annually. What would be the amount of interest?
8. Assume that a $50,000 investment is held for five years in a savings account with 5% simple interest paid annually. What is the future value of such an investment?
7
| Annual rate(M)= | yearly rate/1= | 7.00% | Annual payment= | 59045.62 | |
| Year | Beginning balance (A) | Annual payment | Interest = M*A | Principal paid | Ending balance |
| 1 | 200000.00 | 59045.62 | 14000.00 | 45045.62 | 154954.38 |
| 2 | 154954.38 | 59045.62 | 10846.81 | 48198.82 | 106755.56 |
| 3 | 106755.56 | 59045.62 | 7472.89 | 51572.73 | 55182.83 |
| 4 | 55182.83 | 59045.62 | 3862.80 | 55182.83 | 0.00 |
| Where |
| Interest paid = Beginning balance * Annual interest rate |
| Principal = Annual payment – interest paid |
| Ending balance = beginning balance – principal paid |
| Beginning balance = previous Year ending balance |
| total payment=Annual payment*number of Year |
| =59045.6233*4 |
| =236182.4932 |
| Total interest paid= total payment-period 1 beginning balance |
| =236182.4932-200000 |
| =36182.4932 |
8
FV = PV+PV*interest *time
=50000+50000*0.05*5=62500
Get Answers For Free
Most questions answered within 1 hours.