Question

(10pts) Jim Clark borrowed $20,000 from a friendly credit union to buy a car at 6% interest per year compounded monthly for 60 months. The monthly payment for Jim is nearly equal to _______________.

		$386.66
		$399.99
		$410.33
		$520.43

(10pts) It is expected that an investment of “P” at time “0” to provide an income of $1,000 every year for the next 15 years. If the investor expects to have a rate of return of 7% per year, what is the value of “P”?

		$6,266.66
		$9.107.91
		$7,107.91
		$8,107.91

Answer 1

1)	Monthly Payment	=	Loan amount	/	Present value of annuity of 1
		=	$ 20,000.00	/	51.72556075
		=	$ 386.66
	Working:
	Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
		=	(1-(1+0.005)^-60)/0.005		i	=	6%/12	=	0.005
		=	51.72556075		n			=	60
2)	Value of "P"	=	Annual income	*	Present value of annuity of 1
		=	$ 1,000.00	*	9.107914005
		=	$ 9,107.91
	Working:
	Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
		=	(1-(1+0.07)^-15)/0.07		i	=	7%
		=	9.107914005		n	=	15