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Is Michael's computation correct? Is the bank's computation fair? Why?

Is Michael's computation correct? Is the bank's computation fair? Why?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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the situation below. Let's Save Michael is planning to apply for a loan in Quezon Cooperative Bank, he is already aware of the terms payment for his loan but when he is about to pass his application form and compare his computation with the terms of payment provided by the bank he notices some discrepancy. Michael's Computation Computation from the bank Amount of Loan: P100,000 Amount of Loan: P100,000 Interest rate: 3% Interest rate: 3% Due Date: After 3 years Computation: I = (100, 000)(0.03(3) I = P9,000 Amount to be paid after 3 years Year 1 Year 2 Year 3 %3D Int 3000 6090 9272.70 Amt 103,000 106,090 109,272.70 %3D P109,000 To enlighten he asked some explanations why they have different computations and the bank gave him the detailed computation: Initially at t = 0 P100,000 P100,000 (1.03) = P103,000 P103,000 (1.03) = P106,090 P106,090 (1.03) = P109,272.70 at t = 1 at t = 2 %3D at t = 3 %3D Questions 1. Is Michael's computation correct? 2. Is the bank's computation fair? Why? 2 How much is the difference in the total amount to be paid between Michael's computation and the bank's computation? 4 Why do you think the bank's computation yielded more interest? 5. Do you think the bank committed an error in the computation of the amount to be paid? 14
Transcribed Image Text:the situation below. Let's Save Michael is planning to apply for a loan in Quezon Cooperative Bank, he is already aware of the terms payment for his loan but when he is about to pass his application form and compare his computation with the terms of payment provided by the bank he notices some discrepancy. Michael's Computation Computation from the bank Amount of Loan: P100,000 Amount of Loan: P100,000 Interest rate: 3% Interest rate: 3% Due Date: After 3 years Computation: I = (100, 000)(0.03(3) I = P9,000 Amount to be paid after 3 years Year 1 Year 2 Year 3 %3D Int 3000 6090 9272.70 Amt 103,000 106,090 109,272.70 %3D P109,000 To enlighten he asked some explanations why they have different computations and the bank gave him the detailed computation: Initially at t = 0 P100,000 P100,000 (1.03) = P103,000 P103,000 (1.03) = P106,090 P106,090 (1.03) = P109,272.70 at t = 1 at t = 2 %3D at t = 3 %3D Questions 1. Is Michael's computation correct? 2. Is the bank's computation fair? Why? 2 How much is the difference in the total amount to be paid between Michael's computation and the bank's computation? 4 Why do you think the bank's computation yielded more interest? 5. Do you think the bank committed an error in the computation of the amount to be paid? 14
6. If the term of payment will be longer what do you think will happen between the difference of the amount to be paid in Michael's computation and the bank's computation? 7. If you are Michael and you follow the computation made by the bank do you think there is a way to lessen the amount to be paid at the end of 3 years? How?
Transcribed Image Text:6. If the term of payment will be longer what do you think will happen between the difference of the amount to be paid in Michael's computation and the bank's computation? 7. If you are Michael and you follow the computation made by the bank do you think there is a way to lessen the amount to be paid at the end of 3 years? How?
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