Time value of money
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1) If you borrow $20,000 at the interest rate of 10%, what are the end-of-year payments if the loan is for five years? If the interest rate is 12.5% would the monthly payment be higher/lower
** I cant figure out the monthly payments at 12.5%. I have $5,275 a year for the first part
2) If you want to have $800,000 for retirement in 20 years and have only $100,000 saved today, how much do you need to put away at the end of each year until retirement if your assets can earn 8% per year?
3) If a stock is paying $2.50 per year in dividends, and is expected to continue this indefinitely, with a required rate of return of 8% what is the value of the stock
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The solution explains some time value of money questions
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) If you borrow $20,000 at the interest rate of 10%, what are the end-of-year payments if the loan is for five years? If the interest rate is 12.5% would the monthly payment be higher/lower
** I cant figure out the monthly payments at 12.5%. I have $5,275 a year for the first part
The annual year end payment would be in the form of an annuity such that the present value is equal to the amount borrowed.
We use the PV of annuity formula to calculate the annuity payment. The formula is
PV= PMT [(1 - (1 / (1 + i)^n)) / i]
For 1st case
PV = 20,000
PMT = annual payment
i = 10%
n = 5 years
20,000 = PMT ...
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