Question

You borrowed $1,200 to buy a new computer and agreed to pay the loan back 3 years later; if the loan has a 10 percent interest rate, what is the balance you will owe at that time?

You recently purchased a new car for 18,000 by agreeing to make equal annual payments for 5 years. If the interest rate on your loan is 8 percent, how much is each payment?

Answer 1

Solution 1:

Balance owed after 3 year = $1,200 (1+0.10)^3 = $1,597.20

Solution 2:

Purchase price = $18,000

Total nos of payments = 5

Interest rate = 8%

Amount of each payment = $18,000 / Cumulative PV factor at 8% for 5 periods

= $18,000 / 3.99271 = $4,508