Homework Answers
| I | Assume that the initial investment is $100. Then after 18 months it will become $400. | ||||||||||
| Number of quarters in 18 months = 18/3 = 6 | |||||||||||
| From the above the following information is available. | |||||||||||
| Present value = $100 | |||||||||||
| Future value = $400 | |||||||||||
| Number of periods = 6 | |||||||||||
| Rate of interest = ? (To be calculated) | |||||||||||
| Calculate the rate of interest using the following formula: | |||||||||||
| FV = PV x (1+r)^n | |||||||||||
| Where, | |||||||||||
| FV = $400 | |||||||||||
| PV = $100 | |||||||||||
| n = 6 | |||||||||||
| r = ? | |||||||||||
| Substitue the values in the above formula and solve for r. | |||||||||||
| $400 = $100 x (1 + r )^6 | |||||||||||
| Or, | |||||||||||
| $400 / $100 = (1 + r)^6 | |||||||||||
| Or, | |||||||||||
| (1 + r)^6 = 4 | |||||||||||
| Or, | |||||||||||
| 1 + r = 1.26 | |||||||||||
| Or, | |||||||||||
| r = 1.26 - 1 = 0.26 | |||||||||||
| Or, | |||||||||||
| r = 26%. | |||||||||||
| II | Loan taken, PV = 570000*(1-0.3) = 399000 | ||||||||||
| R = 0.063/12 | |||||||||||
| N = 30*12 = 360 | |||||||||||
| Monthly payment = PMT = PMT(R,N,PV) | |||||||||||
| Using Excel Function | |||||||||||
| PMT(0.057/12,360,-357000) = 2469.70 | |||||||||||
| Monthly payment = $2469.70 | |||||||||||
| Now, calculate the remaining balance at the end of 8 years. | |||||||||||
| PMT = 2469.70 | |||||||||||
| N = 8*12 = 96 | |||||||||||
| R = 0.063/12 | |||||||||||
| PV = 399000 |
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