Using the formula for an annuity, what would be the monthly payments on a 5-year fixed-rate car loan for $20,000 if the effective annual rate is .035 (3.5 percent)? Assume the first payment is exactly one month (1/12th of a year) from now. (The effectively monthly rate is then (1.035)(1/12) -1. After 2 years, when there are 3*12 = 36 monthly payments left (with the next payment being exactly 1 month in the future), how much will the borrower still owe in remaining principle? Next consider a loan where you can make the payments twice a month (still for 5 years), with the first payment in exactly half a month (1/24th of a year). The effective annual rate on this loan is also .035 (3.5%). What are the twice-monthly payments? How does 2 times the twice-monthly payment compare to a single monthly payment? Why is it bigger/smaller? In 2 years (after 2*12*2 = 48 twice-monthly payments have been made), when there are 3*12*2= 72 remaining payments to be made (with the next payment being exactly half a month from then), how much will the borrower still owe in remaining principle? Why is the answer different between the monthly-payment loan and the twice monthly-payment loan?
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
Using the formula for an
loan for $20,000 if the effective annual rate is .035 (3.5 percent)? Assume the first payment is
exactly one month (1/12th of a year) from now. (The effectively monthly rate is then (1.035)(1/12) -1.
After 2 years, when there are 3*12 = 36 monthly payments left (with the next payment being exactly
1 month in the future), how much will the borrower still owe in remaining principle?
Next consider a loan where you can make the payments twice a month (still for 5 years), with the
first payment in exactly half a month (1/24th of a year). The effective annual rate on this loan is also
.035 (3.5%). What are the twice-monthly payments? How does 2 times the twice-monthly payment
compare to a single monthly payment? Why is it bigger/smaller?
In 2 years (after 2*12*2 = 48 twice-monthly payments have been made), when there are 3*12*2=
72 remaining payments to be made (with the next payment being exactly half a month from then),
how much will the borrower still owe in remaining principle? Why is the answer different between
the monthly-payment loan and the twice monthly-payment loan?
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