Question

5. A college student borrows $1500 during her senior year. The loan is to be paid pack in equal monthly payments starting three years after the loan is established (interest accumulates during the grace period). The APR is 2.8% compounded monthly. How much should she expect to pay per month if she only wants to have to make payments for 2 years?

6. Mary has a credit card balance of $4,300 at an APR of 12% compounded monthly. Mary has elected to make interest only payments each month. (A) How much should she expect her monthly payments to be? (B) What will the balance be in her account after 2 years? (C) What would the balance be after 5 years? Mary realizes that this is a bad situation and decides that she wants to pay off the balance in one year’s time. (D) How much must she pay each month to have a zero balance in the account?

Answer 1

	5	Amount borrowed	$1,500
		Monthly interest =(2.8/12)%	0.23333%
		Monthly interest	0.002333
		Future Value (FV)=Present Value (PV)*((1+i)^N)
		Present Value=$1500
		i=interest rate =0.0023333
		N=number of months =36(3 years)
		FV=Amount accumulated in three years	$1,631.28	1500*(1.0023333^36)
	Pv	Amount at the end of 3 years	$1,631.28
	Rate	Interest rate	0.23333%
	Nper	Number of months of payment	24	(2*12)
	PMT	Monthly payment required	$69.97	(Using PMT function of excel with Rate=0.2333%, Nper=24, Pv=-1631.28)
	6	Monthly interest =(12/12)%	1%
		Credit Card Balance	$4,300
		(A)Monthly payment required=4300*1%	$43
		(B) balance in her account after 2 years	$4,300
		.(C)Balance in her account after 5 years	$4,300
	D
	Pv	Loan Balance	$4,300
	Rate	Interest Rate(Monthly)	1%
	Nper	Number of months to clear the loan	12
	PMT	Amount she needs to pay each month	$382.05	(Using PMT function of excel with Rate=1%, Nper=12, Pv=-4300)
				016 =PMT(D14,D15,-D13) G H I J K L M D E F 5 Amount borrowed $1,500 Monthly interest =(2.8/12)% 0.23333% Monthly interest 0.002333 Future Value (FV)=Present Value (PV)*((1+i)^N) Present Value=$1500 i=interest rate=0.0023333 N=number of months =36(3 years) FV=Amount accumulated in three years $1,631.28 1500*(1.0023333436) Pv Rate Nper PMT Amount at the end of 3 years Interest rate Number of months of payment Monthly payment required $1,631.28 0.23333% 24 (2*12) | $69.97 (Using PMT function of excel with Rate=0.2333%, Nper=24, Pv=-1631.28) D28 : * fc =PMT(D26,027,-D25) A B D E F G H I J K L i=interest rate=0.0023333 N=number of months =36(3 years) FV=Amount accumulated in three years $1,631.28 1500*(1.0023333436) Pv Rate Nper PMT A mount at the end of 3 years Interest rate Number of months of payment Monthly payment required $1,631.28 0.23333% 24 (2*12) $69.97 (Using PMT function of excel with Rate=0.2333%, Nper=24, Pv=-1631.28) 1% $4,300 6 Monthly interest =(12/12)% Credit Card Balance (A)Monthly payment required=4300*1% (B) balance in her account after 2 years (C)Balance in her account after 5 years $43 $4,300 $4,300 D Pv $4,300 1% Loan Balance Interest Rate(Monthly) Number of months to clear the loan Amount she needs to pay each month L 12 Nper PMT $382.05 (Using PMT function of excel with Rate=1%, Nper=12, Pv=-4300)