HW. 16

.

Solve each of the following three problems, all of which involve borrowing money from a bank

with an APR of 6.5% compounded annually. Look carefully at how the problems differ from one

another, in spite of appearing similar. In your solutions, say a few words explaining how you can tell

which is the appropriate formula to apply in each case.

a.Suppose that you borrow $1000 once per year, beginning today, and ending 10 years from now

(so you borrow your last $1000 on the ten year anniversary of today's date).

How much will your total debt be at the end of the 10th year?

b.Suppose that you borrow $10,000 today. You repay the loan over the course of ten years, making

a payment every year on the anniversary of today's date. The first payment will be one year from

today, and the last payment will be ten years from today. How much should each payment be?

c.Suppose that you borrow $10,000 today, and repay the loan all at once, on the

ten year anniversary of today's date. How much will you have to repay on that date?