Determine the range of the interest rate

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Reference no: EM132028582

1. John has borrowed $50,000 on which he is paying interest at 17.5% effective per year. He is contributing a level amount m to a sinking fund at the end of each year. The sinking fund earns an annual effective rate of 9%. His combined payment to both the fund and the loan is $9,116.82 annually. Determine the year in which the balance of the sinking fund will be sufficient to repay the loan.

2. Susan wishes to purchase a laptop computer. She is offered the following payment options:

Option 1 : $0 down, $432 in 1 year, $300 in 2 years

Option 2 : $82.56 down, $250 in 1 year, $400 in 2 years

Determine the range of the interest rate i for which the present value of Option 1 is less than the present value of Option 2.

A) 4.2% < i < 16.3% B) i < 4.2% or i > 16.3% C) 3.5% < i < 10.2% D) i < 3.5% or i > 10.2% E) i > 4.2%

Reference no: EM132028582

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