Question

1. What is the future value of P2,100 in 17 years assuming an interest rate of...

1. What is the future value of P2,100 in 17 years assuming an interest rate of 8.4 percent compounded semiannually?

2. You want to buy a new sports coupe for P68,500, and the finance office at the dealership has quoted you a 6.9 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?

Homework Answers

Answer #1

1)

future value = present value*(1+r)^n

r = rate of interest per period = 8.4% / 2 = 4.2%

n = number of periods = 17*2 = 34

future value = 2100*(1+4.2%)^34

= $8505.93

2)

Present value of annuity = P*[1 - (1+r)^-n / r ]

given APR = 6.9%

P = monthly payments

monthly rate = 6.9% / 12 = 0.575%

68500 = P*[1 - (1+0.575%)^-60 / 0.575% ]

Monthly Payments(P) = $1353.15

Effective annual rate = (1 +(r/n))^n - 1

r = rate of interest

n = number of compounding periods

EAR = (1 + (6.9%/12))^12 - 1

= 7.122%

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