Question
1-) You plan your future retirement. There are two options for you: Case 1: Deposit $500 at the end of each quarter for the first
1-) You plan your future retirement. There are two options for you:
Case 1: Deposit $500 at the end of each quarter for the first 5 years. Then, no further deposits, but the money stays for the next 8 years.
Case 2: Nothing is done first 5 years. Then deposit $5.000 at the end of each year for the next 8 years.
Assume that you are offered an interest rate of 6% compounded quarterly and you choose Case 2. Was that a correct decision?
2-) You are going to buy a milling machine for your company. The company borrows money to make the purchase and the loan terms are 9% per year, compounding monthly while making quarterly payments for 10 years. The machine costs $50,000.
- Compute the equivalent interest rate for the payment period.
- Compute the effective interest rate per year.
- Compute the quarterly payments.
- After 12 quarters, we realize that it would be advantageous to pay off the entire machine at the end of the next quarter. How much do we owe?
3-) A $10,000 loan is to be repaid in monthly equal payments in 10 years with an annual effective interest rate of 19.56% charged against the unpaid balance. What principal remains to be paid after the third payment?
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