The Flemings secured a bank loan of $360,000 to help finance the purchase of a h

Question

The Flemings secured a bank loan of $360,000 to help finance the purchase of a house. The bank charges interest at a rate of 5% ,year on the unpaid balance, and interest computations are made at the end of each month. The Flemings have agreed to repay the loan in equal monthly installments over 25 years. What should be the size of each repayment if the loan is to be amortized at the end of the term? (Round your answer to the nearest cent.) 1133.99 0/1 points l Previous Answers TanFin 125.3.028. CMI Notes o Ask Your Teacher Jessica wants to accumulate $12,000 by the end of 6 years in a special bank account, which she had opened for this purpose. To achieve this goal, Jessica plans to deposit a fixed sum of money into the account at the end of the month over the 6-year period. If the bank pays interest at the rate of 7% per year compounded monthly, how much does she have to deposit each month into her account? (Round your answer to the nearest cent.) $867.48

Explanation / Answer

a. This question is based on the concept of present value of annuity. Equal Monthly payment size = Loan Amount/Present Value of annuity of 1 = $     3,60,000 / 171.05323 = $     2,104.61 Working: Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.004167)^-300)/0.004167 i 5%/12 = 0.004167 =      171.05323 n 25*12 = 300 b. This question is based on the concept of future value of annuity. Equal Monthly saving = Target Accumulated amount/Future Value of annuity of 1 = $         12,000 /     89.15982 = $         134.59 Working: Future Value of annuity of 1 = (((1+i)^n)-1)/i Where, = (((1+0.005833)^72)-1)/0.005833 i 7%/12 = 0.005833 =        89.15982 n 6*12 = 72

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