UNIT 4 ASSIGNMENT

Name of the Student

Institutional Affiliations
Question 1: Effective Rate of Interest

Effective rate of interest (REI) is defined as follows:

R EI = 1+ ( ) i n
n
−1

Assuming that a year has 365 days:

( )
365
0.06
R EI = 1+ −1=6.183131068
365

Reduced to 3 decimal places:

6.183 %

Question 2: Present Value

For a given an expected future value (VF) of return and rate of return (r) over n number of
periods, the present value (PV) is defined as follows:

VF
PV =
( 1+ r )n

80,000
PV = =$ 28995.68
( 1+ 0.07 )15

Rounded off to the nearest cents.

Question 3: Future Value and Present Value

Present values of each loan unit:

VF
PV =
( 1+ r )n

2000
PV $ 2000 = =$ 1345.94
( )
4×5
0.08
1+
4
 7000
PV 7000= =$ 4020.62
( )
4 ×7
0.08
1+
4

Net PV:

NPV =$ 1345.94+¿ $ 4020.62=$ 5366.56

Taking the Net Present Value as the new principle, the amount to be paid in 3 days:

( )
4n
r
A=P 1+
4

( )
4 ×3
0.08
A=5366.56 1+ =$ 6806.10
4

Rounded to the nearest cent.

Question 4: Present Value of an Ordinary Annuity

For ordinary annuity, the present value is defined as follows:

( )
( −n)
1−( 1+r )
PV =PMT
r

( )
(− 8 )
1− (1+ 0.0525 )
PV =1200 =$ 7678.07
0.0525

Rounded off to the nearest cents.

Question 5: Amortized Loan Payment Formula

For a loan amount (A), annual interest rate r, and the agreed load duration (T), the monthly
payments (PM) are calculated using the following formula:

[ ( )
]
T×N
r
r 1+
N
PM= A
( )
T×N
r
1+ −1
N
 [ ( )
]
4 × 12
0.105 0.105
1+
12 12
P M =18,000 =460.8608355
( )
4 × 12
0.105
1+ −1
12

Rounded off to the nearest a dollar:

$ 461 .86

Question 6: Amortized mortgage

a. Monthly payment:

[ ( )
]
T×N
r r
1+
N N
PM= A
( ) −1
T×N
r
1+
N

12 (

[12 )

]
300
0.085 0.085
1+
P =350,000 =2818.294792
(1+ 12 ) −1
M 300
0.085

Rounded to the nearest cent:

$ 2818.30 per month
b. Amortization Schedule

Period Principal Outstanding Interest for Payment at Principal Repaid at End

at beginning of Period Period Period End of the Period
1 350000.00 2479.17 2818.29 339.13
2 347181.71 2459.20 2818.29 359.09
3 344363.41 2439.24 2818.29 379.05

c. Finance charge
I =2818.29 ×25 ×12−350000=$ 495,488.4376