The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at an interest rate (APR) of 9% compounded monthly. If the general inflation rate is 2% per month, find the actual-dollar value of the 20th payment of this loan. In the previous question, find the constant-dollar value of the 20th payment of the loan.
The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at an interest rate (APR) of 9% compounded monthly. If the general inflation rate is 2% per month, find the actual-dollar value of the 20th payment of this loan. In the previous question, find the constant-dollar value of the 20th payment of the loan.
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
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Transcribed Image Text:. The purchase of a car requires a $12,000 loan to be repaid in monthly installments for
four years at an interest rate (APR) of 9% compounded monthly. If the general inflation
rate is 2% per month, find the actual-dollar value of the 20th payment of this loan.
In the previous question, find the constant-dollar value of the 20th payment of the loan.
Expert Solution
Step 1: Introduction
Loan:
A loan is a financial agreement in which a lender lends money to a borrower, who agrees to repay the money with interest over a certain time period. Loans can be used for a variety of objectives, including buying a property, funding schooling, and starting a business. The loan repayment amount refers to the periodic amount that is extended by the borrower to the lender. The repayment amount consists of part principal and part interest payment. The actual-dollar value refers to the repayment amount payable for the entire loan duration. Constant-dollar value on the other hand refers to the discounting of the actual-dollar value to adjust for the inflation rate.
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