My Math Forum  

Go Back   My Math Forum > Science Forums > Economics

Economics Economics Forum - Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance


Thanks Tree2Thanks
  • 1 Post By Denis
  • 1 Post By looni
Reply
 
LinkBack Thread Tools Display Modes
April 3rd, 2014, 11:33 PM   #1
Newbie
 
Joined: Apr 2014
From: mars

Posts: 7
Thanks: 2

finance: compounds in payments,interest and value

finance is not my strong point as are word problems. i'm infinitely confused as to which formula to use, basically where to start. please help me.

Erin borrows $40,000 at 7% interest (per year) for purchasing
assets which appreciate in value at 4% per year. Suppose Erin holds
her assets, repaying the loan from her monthly income by constant
monthly amounts. The loan is fully repaid at the end of fi ve years.
Assume that the interest on the loan as well as the asset appreciation
are compounded monthly. At the end of fi ve years,

i. What were Erin's monthly payments?
ii. How much did Erin pay in interest?
iii. By what amount did Erin's assets increase in value?
looni is offline  
 
April 4th, 2014, 11:59 PM   #2
Newbie
 
Joined: Apr 2014
From: mars

Posts: 7
Thanks: 2

Quote:
Originally Posted by looni View Post

Erin borrows $40,000 at 7% interest (per year) for purchasing
assets which appreciate in value at 4% per year. Suppose Erin holds
her assets, repaying the loan from her monthly income by constant
monthly amounts. The loan is fully repaid at the end of fi ve years.
Assume that the interest on the loan as well as the asset appreciation
are compounded monthly. At the end of fi ve years,

i. What were Erin's monthly payments?
ii. How much did Erin pay in interest?
iii. By what amount did Erin's assets increase in value?
okay I tried doing all three. please help me if I am wrong.

i. What were Erin's monthly payments?
PVIFA= 1-[(1+r)^-n]/r = (PV)40,000/(PVIFA)50.5020 = PMT $792.047 for monthly payments

ii. How much did Erin pay in interest?
PMT^n-PV=792.047^60-40,000=$7522.82 in interest?

iii: By what amount did Erin's assets increase in value?
(40,000*(1.04)^5)-40,000 = $8666.11 assets appreciated ***1.04=1+4(100) rate of appreciation***
looni is offline  
April 6th, 2014, 08:08 AM   #3
Math Team
 
Joined: Oct 2011
From: Ottawa Ontario, Canada

Posts: 14,597
Thanks: 1038

Quote:
Originally Posted by looni View Post
iii: By what amount did Erin's assets increase in value?
(40,000*(1.04)^5)-40,000 = $8666.11 assets appreciated ***1.04=1+4(100) rate of appreciation***
Should be 40000 * (1 + .04/12)^60 - 40000
ANNUAL Rate of appreciation should be (1 + .04/12)^12 - 1

You're correct on the other 2 questions.
Thanks from MarkFL
Denis is offline  
April 6th, 2014, 09:12 PM   #4
Newbie
 
Joined: Apr 2014
From: mars

Posts: 7
Thanks: 2

Quote:
Originally Posted by Denis View Post
Should be 40000 * (1 + .04/12)^60 - 40000
ANNUAL Rate of appreciation should be (1 + .04/12)^12 - 1

You're correct on the other 2 questions.

thank you. XD
Thanks from MarkFL
looni is offline  
Reply

  My Math Forum > Science Forums > Economics

Tags
compounds, finance, interest, payments



Thread Tools
Display Modes


Similar Threads
Thread Thread Starter Forum Replies Last Post
Finance & Compounding Interest FlintheartGlomgold Calculus 3 April 3rd, 2014 11:31 PM
Simple Interest: How to find the actual interest rate? grace25 Elementary Math 12 January 24th, 2013 08:46 PM
Car Payments aaron-math Economics 6 January 22nd, 2013 10:05 AM
Loan outstanding to number of payments made Russell368 Economics 3 July 7th, 2011 09:50 PM
Calculate interest rate based on interest in parcels douglasrac Economics 0 February 17th, 2011 09:14 AM





Copyright © 2019 My Math Forum. All rights reserved.