Question

Peter is buying a new smart phone today and is financing his purchase with a loan...

Peter is buying a new smart phone today and is financing his purchase with a loan of $999.

If to repay the loan he makes annual payments over the next three years with end of year installments of $388.

What annual interest rate is he paying?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer: Annual interest rate = 8.05%.

Calculation and explanation:

$999 is the PV of the 3 annual installments of 388
discounted at the interest rate applicable to the loan.
Hence, 999 = 388*PVIFA(r,3), where r = the interest rate
of the loan.
Solving for r
PVIFA(r,3) = 999/388 = 2.5747
The interest rate factor for 8% and 9% are
8% = 2.5771, 9% = 2.5313
r = 8%+1%*(2.5771-2.5747)/(2.5771-2.5313) = 8.05%
CHECK:
388*(1.0805^3-1)/(0.0805*1.0805^3) = $            999.01
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
​Before-tax cost of debt and​ after-tax cost of debt  David Abbot is buying a new​ house,...
​Before-tax cost of debt and​ after-tax cost of debt  David Abbot is buying a new​ house, and he is taking out a 30​-year mortgage. David will borrow ​$210,000 from a​ bank, and to repay the loan he will make 360 monthly payments​ (principal and​ interest) of ​$1,180.79 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable​ income, and based on his​ income, David is in the 30​% tax bracket. a. What...
Before-tax cost of debt and​ after-tax cost of debt David Abbot is buying a new​ house,...
Before-tax cost of debt and​ after-tax cost of debt David Abbot is buying a new​ house, and he is taking out a 30​-year mortgage. David will borrow ​$199,000 from a​ bank, and to repay the loan he will make 360 monthly payments​ (principal and​ interest) of ​$1,242.67 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable​ income, and based on his​ income, David is in the 30​% tax bracket. a. What...
How much is your loan amount today if you are going to repay using 8 equal...
How much is your loan amount today if you are going to repay using 8 equal quarterly payments of $200 with annual interest of 12 percent but assuming quarterly compounding? $1403.93 Bob has $5,000. He expects to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 10 years and end up with zero in the account? $728.43
14. Loan amortization and capital recovery Ian loaned his friend $30,000 to start a new business....
14. Loan amortization and capital recovery Ian loaned his friend $30,000 to start a new business. He considers this loan to be an investment, and therefore requires his friend to pay him an interest rate of 8% on the loan. He also expects his friend to pay back the loan over the next four years by making annual payments at the end of each year. Ian texted and asked that you help him calculate the annual payments that he should...
1) Jens just took out a loan from the bank for 79,702 dollars. He plans to...
1) Jens just took out a loan from the bank for 79,702 dollars. He plans to repay this loan by making a special payment to the bank of 4,130 dollars in 4 years and by also making equal, regular annual payments of X for 8 years. If the interest rate on the loan is 12.57 percent per year and he makes his first regular annual payment in 1 year, then what is X, Jens’s regular annual payment? 2) Theo just...
Joe secured a loan of $13,000 four years ago from a bank for use toward his...
Joe secured a loan of $13,000 four years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 5%/year compounded monthly on his loan. Now that he has graduated from college, Joe wishes to repay the loan by amortizing it through monthly payments over 15 years at the same interest rate. Find the size of the monthly payments he will be required to make. (Round your answer to the nearest cent.) $...
Willie Wilson plans to borrow $34,347 at the beginning of each of his 4 years of...
Willie Wilson plans to borrow $34,347 at the beginning of each of his 4 years of college. He will repay the loan in 15 equal annual installments at the end of each year starting one year after he graduates. If the interest rate is 6.27%, how large will the installments be? Interest will accrue on Willie's loan while he is in college.
Christie is buying a new car today and is paying a $7500 cash down payment. She...
Christie is buying a new car today and is paying a $7500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? A. The future value of the loan is equal to 37 x 450. B. The present value of the car is equal to $7500 + (36...
Jack wants to buy a boat today today but has realised that if he takes out...
Jack wants to buy a boat today today but has realised that if he takes out a loan he can only repay $1200 quarterly, with payments made at the beginning of each quarter, over the next 10 years. How much can he spend on his boat today if the interest rate is 11.6% per annum compounded quarterly? Select one: a. $7692.30 b. $28191.63 c. $29009.19 d. $6892.74
Bernard purchased a car and financed his purchase with a loan at 5% interest. His payments...
Bernard purchased a car and financed his purchase with a loan at 5% interest. His payments are $475 per month. If he has 3 years left on his loan, what is his remaining balance?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT