Question

Question 5: (Annuity Payment)

You've got a $25,000 in student loan. if you pay it back over 15 years at 7% compounded monthly, how much is your monthly loan payments?

Question 6: (Perpetuity)

What is the present value of a perpetuity: $300 perpetuity discounted back to the present 8%?

1. Showing clearly which EQUATIONS from the textbook could be used to solve the problem mathematically
2. Indicating the detailed steps on how to use FINANCIAL CALCULATOR to solve the problems. You also need to let me know which financial calculator that you used.

Answer 1

Question 5

Information provided:

Present value= $25,000

Time= 15 years*12= 180 months

Interest rate= 7%/12= 0.5833% per month

The monthly loan payment is calculated with the help of a BA Plus II Texas Instruments financial calculator by entering the below:

PV= -25,000

N= 180

I/Y= 0.5833

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 224.71.

Therefore, the monthly loan payment is $224.71.

Question 6

Information provided:

Perpetuity= $300

Discount arte= 8%

Present value of the perpetuity = Perpetuity /Discount rate

  = $300/ 0.08

                                                   = $3,750

In case of any query, kindly comment on the solution.