My Math Forum finance: compounds in payments,interest and value

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 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? April 4th, 2014, 11:59 PM #2 Newbie Joined: Apr 2014 From: mars Posts: 7 Thanks: 2 Quote:  Originally Posted by looni 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?

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*** 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 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.

April 6th, 2014, 09:12 PM   #4
Newbie

Joined: Apr 2014
From: mars

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Quote:
 Originally Posted by Denis 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

 Tags compounds, finance, interest, payments

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