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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 five years. Assume that the interest on the loan as well as the asset appreciation are compounded monthly. At the end of five 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:
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^nPV=792.047^6040,000=$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: 14,412 Thanks: 1024  Quote:
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 Posts: 7 Thanks: 2  

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compounds, finance, interest, payments 
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