Question
A. Suppose you want to buy a new laptop which costs $15,000. The store will allow you to make monthly instalments for 3 years, and
A. Suppose you want to buy a new laptop which costs $15,000. The store will allow you to make monthly instalments for 3 years, and the interest rate is 5.5% with monthly compounding. The monthly payment is made at the beginning of every month. What is your monthly payment? Show your calculations.
(3 marks)
B. Suppose you are considering taking a loan from one of two financial companies. Financial Company X charges you an interest rate of 13.5% with monthly compounding. Financial Company Y charges you an effective annual rate (EAR) of 14% with semi-annual compounding. Which company should you borrow your loan from and why? Show your calculations.
(3 marks)
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