Question

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?

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%