Assuming that I can borrow and lend any amount at 1.25% per year with interest accrued annually in arrears: [10 marks]

(i) What is the present discounted value (PV) of 20,000 due 5 years from now? (ii) What principal (lump sum) must I invest now to have 20,000 in 10 years time?

(iii) How would the answer in part ii) differ if interest accrued daily?

You decide you need a new car at a cost of 9,990 and are offered finance terms of 60 equal monthly instalments at 13.9% APR with interest charged on the outstanding debt on a monthly basis.

3.

[15 marks]

1. (i) What is the total amount repaid each month? What is the overall cost of the loan?

2. (ii) What is the capital payment for the first monthly payment? What is the interest payment for the

   first monthly repayment?

3. (iii) What is the total end of loan repayment if the loan was repaid with a single lump sum payment at

   the end of the loan period rather than monthly? How much more does this method of repayment cost you relative to part (i)?