Finance Mathematics 1

23. What monthly payment is required to amortize a lone of 30000 over 12 years if interest at the rate of 12 percent is charged on the unpaid balance and interest calculations are made at the end of each month?

Solution: The formula we can use is: R= P i(1 + i)n (1 + i)n 1 (1)

P=30000, i=.12, n=144 (amount of payments made throughout the whole period). R= 30000 .12 (1.12)144 (1.12)144 1 (2)

Solve for R, and we get 3600.00 cent.

24. The Flemings secured a bank loan of 336000 to help nance the purchase of a house. The bank charges interest at a rate of 10 percent a year on the unpaid balance, and interest computations are made at the end of each month. The Flemings have agreed to repay the loan in equal monthly installments over 25 years. What should be the size of each repayment if the loan is to be amortized at the end of the term?

Solution: The same rules apply for this problem as the last one. P=336000, r=.1, n=300, Plug this in and we get: R= Solving for R, we get R=33600 336000 .1 (1.1)300 (1.1)300 1 (3)

25. The price of a new car is 40000. Assume that an individual makes a down payment of 25 percent toward the purchase of the care and secures nancing for 1

the balance at the rate of 10 percent a year compounded monthly. a. What monthly payment will she be required to make if the car is nanced over a period of 24 months? 48 months?

Solution: First, note that the down payment is 25 percent, which is 10000. This means, all that is left is 30000 and that is the value we want to compound monthly. We can use this formula to nd the monthly payments: R= P i(1 + i)n (1 + i)n 1 (4)

where R is the monthly payments, P is the amount of the payment, i is the interest rate, and n is the total amount of monthly payments. So plugging this into our formula, we get: R= 30000 .1 (1 + .1)2 4 (1 + .1)2 4 1 (5)

and we get R=3338.99 for 24 months, and R=3031.24 for 48 months. b. Find the interest charges for each plan.

Solution: We take each principal value, and multiply them by the interest rate, which is 10 percent, or .1. We should get for the interest charges: 2460.18, 2017.50

26. The Taylors have purchased a 220000 house. They made an initial down payment of 40000 and secured a mortgage with interest charged at the rate of 8 percent a year on the unpaid balance. Interest computations are made at the end of each month. if the loan is to be amortized over 30 years, what monthly payment will the Taylors be required to make?

Solution: Same ordeal, except they have already paid 40000, so all thats left is the 180000. P=180000, r=.08, , n=360: R= 180000 .08 (1.08)360 (1.08)360 1 (6)

solve for P, and we get R=14400

b.What is their equity after 5 years? After 10 years? After 20 years?

Solution: To nd equity (the amount paid on a piece of property), we have the principal balance P, so we put that into our equation, and use those times to nd our A value, or the value that has been paid. So: A = 14610.43(1 + .006)60 , A = 14610.43(1 + .006)
120

(7) (8) (9)

A = 14610.43(1 + .006)

240

For each of those values after 5 years, 10 years, and 20 years, we get: 22204.00, 33744.23, 77935.61 (not sure about this one, this is from using A = P (1+r/m)mt where P is the principal, A is the future value, r is the interest rate, m is the amount of times charged a year, and t is the amount of years.

27. The Sandersons are planning to renance their home. The outstanding principal on their original loan is 150000 and was to be amortized in 240 equal monthly installments at an interest rate of 10 percent a year compounded monthly. The new loan they expect to secure is to be amortized over the same period at an interest rate of 8 percent a year compounded monthly. How much less can they expect to pay over the life of the loan in interest payments by renancing the loan at this time?

Solution: We have two sets of equations that we are working with here. First, the information we are given is P1 = 150000, r1 = .1, n = 240. Lets go ahead and nd how much the monthly installments are for the rst one. We get: R= 150000 .1 (1.1)240 (1.1)240 1 (10)

R=15000. Now, lets calculate the