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    Loans, Yield to Maturity

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    Please use the excel PMT Function
    21 Loan Payments. If we take out an $8,000 car loan that calls for 48 monthly payments at an APR of 10 percent, what is your monthly payment? What is the effective annual interest rate on the loan.

    36 Amortizing Loan. we take out a 30-year $100,000 mortgage loan with an APR of 6 percent and monthly payments. In 12 years you decide to sell your house and pay off the mortgage. What is the principal balance on the loan?

    Several years ago , castles in the sand INC, issued a bond at face value at a yield to maturity of 7 percent , now with 8 year left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15 percent. What has happened to the price of the bond? Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80 percent of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?

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    Solution Preview

    21 Loan Payments. If we take out an $8,000 car loan that calls for 48 monthly payments at an APR of 10 percent, what is your monthly payment? What is the effective annual interest rate on the loan.

    Frequency= M Monthly
    No of years= 4
    No of Periods= 48
    Discount rate annually= 10.00% annual
    Discount rate per period= 0.8333%
    n= 48
    r= 0.8333%
    PVIFA (48 periods, .8333% rate ) = 39.428459

    Annuity x PVIFA = $8,000
    or Annuity = $202.90 =$8,000 / 39.428459

    Answer: Monthly payment= $202.90

    This can also be solved using excel function PMT ($202.90) =PMT(10%/12,48,8000)
    (The sign is negative as this is a cash outflow)

    Effective annual interest rate = (1+ 10%/12) ^ 12 -1= 10.4713%

    36   Amortizing Loan. we take out a 30-year $100,000 mortgage loan with an APR of 6 percent and monthly payments. In 12 years you decide to sell your house and pay off the ...

    Solution Summary

    The solution provides answers to questions on loan payments, effective annual interest rate, amortizing loan and the yield to maturity of a bond that is likely to default on principal repayments

    $2.19

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