Math11 Sample Problem: 1.

You take out a loan for $36,000 to purchase a new car. If the interest rate on this loan is 15 percent, and you want to repay the loan in four annual payments, how much will each annual payment be? How much interest will you have paid for the car loan at the end of four years?

Given: Pv =$36000 r = 15%= 0.15 m=1 t = 4 years n=4 Reqd: periodic payment, Interest Formula: R=Pv[i/1-(1+i)^-n] I= (R*n)-Pv Solution: R= $36000[(0.15/1)/1-(1+015/1)^-4] = $12609.55 I = ($12609.55*4)-$36000 =$14438.20 2. Suppose you determine that you can pay $5,000 per year on a loan. If the loan is for a period of six years and the interest charged is 5% per year, how much can you borrow? Given: R = $5000 r =5% = 0.05 m=1 t=6 n=6 Reqd: Present Value Formula: Pv = R[1-(1+i)^-n/i] Solution: Pv = $5000[(1-(1+0.05/1)^-6)/0.05/1] = $25378.46