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Calculating the periodic amounts

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1. Lily Henry wants to buy her son a car for his 21st birthday. If Lily's son is turning 16 today, and interest is 8% per annum, compounded semiannually, what would Lily's semiannual investment need to be if the car will cost $30,000 and the first payment is made six months from today?

2. Determine the amount of the specific payment needed to pay off the following purchases. Payments are made at the end of the period.

a. Purchase of a flat-screen TV for $2,410.monthly payments are to be made for one year with interest at 24% per annum, compounded monthly.
b. Purchase of a warerskiling boat for $26,565.quarterly payment are to be made for four years with interest at 8% per annum, compounded quarterly.
c. Purchase of a condomimunm for $65,500, semiannual payment are to be made for 10 years with interest at 10% per annum, compounded semiannually.

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Solution Preview

1. Lily Henry wants to buy her son a car for his 21st birthday. If Lily's son is turning 16 today, and interest is 8% per annum, compounded semiannually, what would Lily's semiannual investment need to be if the car will cost $30,000 and the first payment is made six months from today.

Number of investments=n=5*2=10
Amount of investment per semiannual=R=?
Interest rate=i=8%/2=4% per semi annual
Future Value of investment=FV=$30000

Future value of an ordinary annuity is given ...

Solution Summary

Concepts of annuities are widely used in financial decision making. Solutions to given problems depict the steps to calculate the periodic payment amount for each of the given cases.

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See Also This Related BrainMass Solution

Compound Interest

Chinn Wong wishes to purchase a $600,000 house. She has accumulated a $120,000 down payment, but she wishes to borrow $480,000 on a 30-year mortgage. For simplicity, assume annual mortgage payments occur at the end of each year and there are no loan fees.

1. What are Wong's annual payments if her interest rate is:
a. 8%
b. 10%
c. 12%
all compounded annually?

2. Repeat number 1 for a 15-year mortgage.

3. Suppose Wong had to choose between a 30-year and a 15-year mortgage, either one at a low 10% interest rate. Compute the total payments and total interest paid on
a. a 30-year mortgage and
b. a 15-year mortgage.

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