Your parents are giving you $310 a month for 5 years while you are in college. A
ID: 2703845 • Letter: Y
Question
Your parents are giving you $310 a month for 5 years while you are in college. At a 8 percent discount rate, what are these payments worth to you when you first start college?
Todd is able to pay $310 a month for 4 years for a car. If the interest rate is 6.2 percent, how much can Todd afford to borrow to buy a car?
You are considering an annuity which costs $74,100 today. The annuity pays $6,000 a year. The rate of return is 5 percent. What is the length of the annuity time period? (Do not round intermediate calculations.)
You borrow $7,030 to buy a car. The terms of the loan call for monthly payments for 7 years a rate of interest of 8 percent. What is the amount of each payment?
The Good Life Insurance Co. wants to sell you an annuity which will pay you $640 per quarter for 25 years. You want to earn a minimum rate of return of 4.9 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
You are considering an annuity which costs $74,100 today. The annuity pays $6,000 a year. The rate of return is 5 percent. What is the length of the annuity time period? (Do not round intermediate calculations.)
You borrow $7,030 to buy a car. The terms of the loan call for monthly payments for 7 years a rate of interest of 8 percent. What is the amount of each payment?
The Good Life Insurance Co. wants to sell you an annuity which will pay you $640 per quarter for 25 years. You want to earn a minimum rate of return of 4.9 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
Explanation / Answer
Hi,
Please find the answer as follows;
Part 1:
PV = ?
PMT = 310
Nper = 5*12 = 60
PV = 0
Rate = 8%/12
Present Value = PV(rate,nper,pmt,fv) = PV(8%12,60,310,0) = 15288.71
Answer is 15288.71
Part 2:
PV = ?
PMT = 310
Nper = 4*12 = 48
FV = 0
Rate = 6.2%/12
Present Value = PV(rate,nper,pmt,fv) = FV(8%12,60,310,0) = 16838.52
Answer is 16838.52
Part 3:
Nper = ?
PMT = 6000
Rate = 5%
PV = -74100
FV = 0
Length = Nper(rate,pmt,pv,fv) = Nper(5%,6000,-74100,0) = 19.697 or 19.70 Years
Answer is 19.70 Years.
Part 4:
PMT = ?
Rate = 8%/12
Nper = 12*7 = 84
PV = 7030
FV = 0
Payment = PMT(rate,nper,pv,fv) = =PMT(8%/12,84,-7030,0) = 109.57
Part 5:
PV = ?
PMT = 640
Rate = 4.9%/4
Nper = 25*4 = 100
FV = 0
Present Value = PV(rate,nper,pmt,fv) = PV(4.9%/4,100,640,0) = 36782.91
Thanks.
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