(a)
Find the monthly payment amount.
(a)
Answer to Problem 20P
The monthly payment amount is
Explanation of Solution
Given data:
The normal interest rate
The present value
The number of years
The number of interest compounding periods per year
Formula used:
Formula to calculate the uniform series payment with the given present cost is,
Here,
Calculation:
Substitute
Therefore, the monthly payment amount is
Conclusion:
Thus, the monthly payment amount is
(b)
Find the effective interest rate.
(b)
Answer to Problem 20P
The effective interest rate is
Explanation of Solution
Given data:
The present value
The number of years
The number of interest compounding periods per year
Formula used:
Formula to calculate the uniform series payment with the given present cost is,
Here,
Formula to calculate the effective interest rate is,
Calculation:
It is given that the bank charges
Substitute
Hence, the present value
Substitute
Reduce the equation as,
By using trial and error method, calculate the value of
(i) Interest rate of
Substitute
From the equation (6), it is clear that
(ii) Interest rate of
Substitute
From the equation (7), it is clear that
Substitute
Therefore, the effective interest rate is
Conclusion:
Thus, the effective interest rate is
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Chapter 20 Solutions
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