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PROBLEM 1

Eric leased a new car. The deal calls for 36 beginning-of-month payments of $450, starting today. In addition, Eric has to include $1,000 with the final payment. The contract has an APR of 12% with monthly compounding. What is the present value of the lease?

PROBLEM 2

Three years ago, a touching video was posted on YouTube. It's about a young soldier helping his mother pay off mortgage by giving her $50,000 after saving for two years. Suppose this soldier's total annual salary was $30,000 and the salary was paid monthly. He saved money by making monthly deposits into a saving account carrying an interest rate of 3 percent compounded monthly. Assume all deposits are at the end of a year, how much did he spend each month during the two years?

PROBLEM 3

John and Mary bought a house in Thunder Bay 3 years ago. They took out a 30-year mortgage of $200,000 from RBC at that time. The stated interest rate is 6%.

(a) What is the effective monthly rate for this mortgage?

(b) What is the monthly payment of this mortgage?

(c) What would be the total interest cost (including the interest paid over the past three years) if this couple follows the monthly payment schedule to the end of the mortgage term?

(d) Today, following a friend's advice, John decides to switch to bi-weekly payments. What would be the monthly payment? And how much interest can he save? Assume John has just made the monthly payment, and the next payment is in one month.

(e) How much is the monthly payment if it is a US mortgage with the same principal amount, quoted rate and mortgage term?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92062005

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