Teal and Associates needs to borrow $35,000. The best loan they can find is one at 12% that must be repaid in monthly installments over the next 3- years. How much are the monthly payments? (a) State the type. present value O future value O sinking fund O ordinary annuity O amortization (b) Answer the question. (Round your answer to the nearest cent.)
Teal and Associates needs to borrow $35,000. The best loan they can find is one at 12% that must be repaid in monthly installments over the next 3- years. How much are the monthly payments? (a) State the type. present value O future value O sinking fund O ordinary annuity O amortization (b) Answer the question. (Round your answer to the nearest cent.)
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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## Loan Payment Calculation
Teal and Associates needs to borrow **$35,000**. The best loan they can find is one at **12%** that must be repaid in monthly installments over the next **3 1/2 years**. How much are the monthly payments?
### (a) State the type.
- [ ] present value
- [ ] future value
- [ ] sinking fund
- [ ] ordinary annuity
- [ ] amortization
### (b) Answer the question. (Round your answer to the nearest cent.)
$[____]
---
In the question above, Teal and Associates are looking to determine their monthly loan payments for a $35,000 loan at an interest rate of 12% over a period of 3.5 years. The problem is broken into two parts: identifying the type of loan and calculating the monthly payment. The options provided for the type of loan help classify the loan for further financial calculations.
To solve part (b), you will need to understand the concept of loan amortization and use the formula for monthly payments on an amortizing loan.
**Explanation for formulating the monthly payments:**
- **Principal (P)**: $35,000
- **Annual interest rate (r)**: 12%
- **Loan term in years (t)**: 3.5 years
- **Number of payments per year (n)**: 12
The formula to calculate the monthly payment (M) is given by:
\[ M = P \frac{r(1+r)^n}{(1+r)^n-1} \]
where:
- \(P\) is the loan amount (principal)
- \(r\) is the monthly interest rate (annual rate/12)
- \(n\) is the total number of payments (years * 12 for monthly payments)
By substituting the specific values into this formula, one can calculate the exact monthly payment amount.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1777123f-810b-497c-949b-2fdd5467c391%2Fb1c5f8ac-21c3-4c67-8bf0-e6f411e12e20%2Ff8jazz_processed.jpeg&w=3840&q=75)
Transcribed Image Text:---
## Loan Payment Calculation
Teal and Associates needs to borrow **$35,000**. The best loan they can find is one at **12%** that must be repaid in monthly installments over the next **3 1/2 years**. How much are the monthly payments?
### (a) State the type.
- [ ] present value
- [ ] future value
- [ ] sinking fund
- [ ] ordinary annuity
- [ ] amortization
### (b) Answer the question. (Round your answer to the nearest cent.)
$[____]
---
In the question above, Teal and Associates are looking to determine their monthly loan payments for a $35,000 loan at an interest rate of 12% over a period of 3.5 years. The problem is broken into two parts: identifying the type of loan and calculating the monthly payment. The options provided for the type of loan help classify the loan for further financial calculations.
To solve part (b), you will need to understand the concept of loan amortization and use the formula for monthly payments on an amortizing loan.
**Explanation for formulating the monthly payments:**
- **Principal (P)**: $35,000
- **Annual interest rate (r)**: 12%
- **Loan term in years (t)**: 3.5 years
- **Number of payments per year (n)**: 12
The formula to calculate the monthly payment (M) is given by:
\[ M = P \frac{r(1+r)^n}{(1+r)^n-1} \]
where:
- \(P\) is the loan amount (principal)
- \(r\) is the monthly interest rate (annual rate/12)
- \(n\) is the total number of payments (years * 12 for monthly payments)
By substituting the specific values into this formula, one can calculate the exact monthly payment amount.
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