Explore BrainMass

Explore BrainMass

    Calculation of repayments, value of shares and bonds

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Method and answers for attached

    © BrainMass Inc. brainmass.com December 24, 2021, 4:59 pm ad1c9bdddf


    Solution Preview

    1. You would like to buy a machine. The conditions of the sale are as follows:
    <br>Price without discount: $100,000;
    <br>Final bullet payment: $30,000
    <br>Repayment period: 7 years, compounded daily and payable weekly
    <br>APR equals 8 percent.
    <br>A choice must be made for borrowing the initial deposit of 15,000. Is it more appropriate to borrow at the 6 percent p.a. payable as a lump sum after two years, or repay the debt in four equal semiannual installments of $4035.40. In the latter case the interest rate is 6 percent compounded semiannually.
    <br>What is the Effective Annual Rate?
    <br>In the first case, the EAR = 6%
    <br>In the second case, the semiannual rate is R=6/2 = 3%
    <br>Then the effective annual rate is:
    <br>EAR = ((1 + R)^ 2) - 1 = 6.1%
    <br>Obviously, the EAR in the second case is higher than that of the first case.
    <br>Calculate the weekly payment?
    <br>The Daily rate is 8%/365 = 0.0219%
    <br>The Present Value is $100,000
    <br>Final Value is $30,000
    <br>Number of periods = 365*7=2555
    <br>Then calculate payment each day is: PMT = $59.88
    <br>(refer to the attach EXCEL file for calculation)
    <br>So the weekly payment = 7*PMT = 7*$59.88 = $419.16
    <br>How much would you still owe after 5 years?
    <br>At the end of 5 years, the future value of all the payments in 5 years is
    <br>PMT = 59.88
    <br>The Daily rate = 0.0219%
    <br>Number of periods = 365*5=1825
    <br>Then FV is calculated =$ 134,350.04
    <br>However, the FV of the Price without discount: $100,000 is =-FV(r, 365*5, 0, PV) = $149,175.93
    <br>Moreover, the present value at of Final bullet payment at the end of 5 years ...