Complete each of the following problems, and be sure to show your work with the

Question

Complete each of the following problems, and be sure to show your work with the appropriate formulation of the basic time value of money formula.

1. Greg Graduate is planning to purchase a car and repay the loan in 30 equal payments at an annual interest rate of 12%. If the car costs $20,000 and Greg pays a 20% down payment, what is the monthly payment? (Note that this is often called a capital recovery)

2. Connie Collateral accepted a $35,000 per year job from 2nd National Bank, but in doing so passed over a job with Community Lenders that started at $32,000 per year. Assuming that the difference in salary persists over the next twenty years, what is the cumulative difference in salary worth today using a 5% assumed rate of increase in salaries?

Explanation / Answer

Cost of car = $20,000

Annual interest rate = 12% monthly rate is 0.01

Payment = 30 equal payment

Downpayment =20% i.e $4000

Balance to be paid = $16000

EMI value can be calculated in Excel using PMT function, which has the following syntax:

=PMT(RATE,NPER,PV,FV,TYPE)

=PMT (0.01,30,16000,0,0) = $619.97

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