Smith has arranged for a mortgage loan of $200,000. The annual rate on the loan is 12%. The bank requires Mr. Smith to make payments of $4,212.90 at the end of every month. How many payments will Mr....

1. Smith has arranged for a mortgage loan of $200,000. The annual rate on the loan is 12%. The bank requires Mr. Smith to make payments of $4,212.90 at the end of every month. How many payments will Mr. Smith have to make?


2. You have decided to buy a car, the price of the car is $18,000. The car dealer presents you with two choices:

• Purchase the car for cash and receive $2000 instant cash rebate – your out of pocket expense is $16,000 today.


• Purchase the car for $18,000 with zero percent interest 36-month loan with monthly payments.

            The market interest rate is 4%. Which of the option above is cheaper? How much do you save?

Extracted text: Future and Present Value 1. FV = C(1+r)" %3D 2. PV = (1+r)T 3. FV = PV(1 +r)" %3D 4. r D PV FVT -1 Inv) 5. Т- PV %3D In(1+r) Annuity 1. PV = P[1- pmt 1 (1+r)". PV r 2. ртt %3D (1+r)" [In(pmt)-In(pmt-PV•1)] In(1+r) 3. Т— pmt 4. FV =[(1 +r)" Annuity Due pmt 1 (1+r)" (1+r) [(1 +r)" – 1](1 +r) 5. PV : 6. FV = jud EAR & APR m 1. EAR = (1+4)-1 2. APR = m[(1+ EAR) – 1] %3D m