Question #1 – Simple Interest
Jason needed to borrow $4,000 to pay for plane tickets to Europe. His bank offered him a simple interest loan with an 8% annual interest rate and a 24-month term. Jason does not want to pay any more interest than he must so he checked with his credit union and found they would offer him the same loan amount with 6% simple interest on a 3-year loan. Jason’s loan at both institutions was structured as an installment loan.
- Calculate the finance charge (interest), the total installment price, and the monthly payment for the bank loan.
- Calculate the finance charge (interest), the total installment price, and the monthly payment for the credit union loan.
- Which loan is going cost Jason more in terms of finance charge?
- Aside from the finance charge consideration, what other factors might influence Jason’s choice of loan?
Question #2 – Effective Annual Yeild
A savings account has a nominal rate of 7%. The interest is compounded daily. Find the account’s effective yield assuming 360 days in a year.
Question #3 – Annuity Payment
David is saving money to open a workout gym. He needs $10,000 in three years to purchase equipment and initiate a building lease. He’s investing his savings in an annuity yielding an annual interest rate of 6.5% compounded monthly. If the annuity requires that David make monthly investments, what annuity payment must Jeremy make to save $10,000?
- Show all your work so that the instructor clearly sees how you solved the problem.
- Make sure your final answer is clear and visible.