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    TVM, Solve for PMT, Annual Percentage Rate, and Add on Interest

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    1. Using the simple interest method, find the monthly payments on a $2,300 installment loan if the funds are borrowed for 18 months at an annual interest rate of 12%. Use financial calculator to answer the question. Round the answer to the nearest cent.

    a. $ ??? per month
    b. How much interest will be paid during the first year of this loan? (Use a monthly payment analysis similar to the one in Exhibit 7.6.) Round your intermediate computations and final answers to the nearest cent.
    Exhibit 7.6:

    2. Jack Colsen wants to buy a new high-end audio system for his car. The system is being sold by two dealers in town, both of whom sell the equipment for the same price of $2,000. Jack can buy the equipment from Dealer A, with no money down, by making payments of $118.28 a month for 18 months; he can buy the same equipment from Dealer B by making 36 monthly payments of $69.33 (again, with no money down). Jack is considering purchasing the system from Dealer B because of the lower payment.

    a. Find the APR for Dealer A. Round the answer to 2 decimal places.
    b. .Find the APR for Dealer B. Round the answer to 2 decimal places.

    3. Patricia Fox plans to borrow $5,000 and to repay it in 36 monthly installments. This loan is being made at an annual add-on interest rate of 11.5 percent.

    a. Calculate the finance charge on this loan, assuming that the only component of the finance charge is interest. Round the answer to the nearest cent.
    b. Use your finding in part a. to calculate the monthly payment on the loan. Round the answer to the nearest cent.
    c. Using a financial calculator, determine the APR on this loan. Round the answer to 2 decimal places.

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    Solution Summary

    The solution uses functions in Excel and calculator to demonstrate how to do this.