is NOT a timed quiz. Question 1 20 pts LO1 You have a student loan that requires
ID: 2821790 • Letter: I
Question
is NOT a timed quiz. Question 1 20 pts LO1 You have a student loan that requires you to pay $265 per month, starting next month, for 120 months. You can make these payments or enter a new loan that requires you to pay $230 per month, starting next month, for 120 months. To switch to the new loan will cost you a "financing fee" of $500 today If your investments earn 3% APR (compounded monthly, how much do you save in PV terms by taking out the new loan? $3,125 O $3,062 $3,031 $3,187 $3,218 Question 2 20 pts acBook Air od a FT F8 F5Explanation / Answer
we need to PV of annuity in both case and then subtract it
PV of annuity in case 1 = payment * ( 1 - (1+r)^-n)/r
= 265 * (1 - 1.0025^-120)/.0025
= $27443.86
PV of annuity in case 1 = payment * ( 1 - (1+r)^-n)/r
= 230 * (1 - 1.0025^-120)/.0025
= $23,819.20
advantage to switching to 2nd option = $27,443.86 - $500 - $23,819.20 = $3125
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