Suppose you want to start saving on a monthly basis so that you can purchase a $
ID: 2798385 • Letter: S
Question
Suppose you want to start saving on a monthly basis so that you can purchase a $50,000 car using cash 36 months from today (starting with $0 saved). How much do you need to save each month, earning 2.0% interest annually, in order to accumulate a Future Value (FV) of $50,000?
A. Suppose you don't wait and purchase the $50,000 car today. If you financed the entire $50,000 (no fees or taxes added), how much would the monthly payments be if you pay 8% interest annually and pay off the $50,000 loan in 36 month’s time?
B. How much do these monthly payments differ? In 50 words or less, explain why the monthly payments differ?
Explanation / Answer
a) use pmt formuale in excel to find the monthly amount
=pmt(rate,nper,pv,fv,tpye)
=pmt(2%/12,36,0,50000,0)
=1348.80
b)=PMT(8%/12,36,50000,0,0)
=1566.82
they differ by 15566.82-1348.80=218.02
The monthly payments differ since the annual rate is different in both the cases and in second case if we take total loan 50000 today the rate is 8% so per month amount is more
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