1. George Costanza has just taken out an $23,604.00, 60-month car loan from his
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Question
1. George Costanza has just taken out an $23,604.00, 60-month car loan from his local bank with a 6.12% interest rate compounded monthly. At the end of the second year, George plans on making a $2,279.00 payment directly to the loan’s principal and then to keep on making his regular monthly payments. What is the balance remaining to pay on the loan after two years?
2. George Costanza has just taken out an $23,604.00, 60-month car loan from his local bank with a 6.12% interest rate compounded monthly. At the end of the second year, George plans on making a $2,279.00 payment directly to the loan’s principal and then to keep on making his regular monthly payments. What is the balance remaining on the loan after the extra payment to principal is made? (This happens after year 2...)
3. A couple saves $500.00 per month (end of month) for 40.00 years. They can earn 6.00% annual interest with monthly compounding on this account. The couple wants their retirement account to last for 25.00 years. When they retire, they will move their savings into a money market fund that pays 2.40% annual interest with monthly compounding. What is the value of this account when they retire
Explanation / Answer
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1. Hence, balance on loan after 2 years but before lumpsum payment towards principal = $15,016.55
Present Value of loan = $23,604
60-month @ 6.12% interest compounded monthly.
Firstly monthly payment amount can be calculated using the excel formula: "=PMT(6.12%/12,60,23604,0,0)" and it comes out to be $457.65
Value of loan after 60 months can be easily calculate using excel formula(IF YOU WANT STEPS, ASK ME IN THE COMMENTS) : "=FV((6.12%/12),24,457.65,-23604,0)" an it comes out to be $15,016.55
2. Hence, balance on loan after 2 years after lumpsum payment towards principal = $12,737.55
The payment of $2279 at the end of year 2. Hence, balance of loan after this payment =
$15,016.55 - $2279 = $12,737.55
I hope this solves your doubt.
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