Reference no: EM132886485
Questions-
Q1) Your company is planning to borrow $1,000,000 on a 3-year, 8%, fully amortized, term loan. Payments for this loan are made at the end of each year, in equal installments.
a. What is the amount of each annual payment?
b. What will be the amount of the principal paid in the second yearly installment?
c. What will be the amount of interest paid in the third yearly installment?
Q2) Sergio just purchased a new iPad for $600 using his credit card, which carries an 18% nominal interest rate. The minimum payment on the card is $25 per month.
a) If Sergio makes the minimum monthly payment and makes no other charges to the card, how many months will it take him to pay off the balance on his card?
b) If Sergio makes monthly payments of $40, how many months will it take him to pay of the balance on his card?
c) How much more in payments (dollars) will Sergio make under the $25/month than under the $40/month plan? What do these extra dollars represent?
Q3) Assume that you just won the national lottery. Your prize could be taken either in the form of $40,000 each year for the next 25 years (i.e., $1,000,000 over 25 years) or a lump sum of $500,000 paid immediately.
a. If you expect to be able to earn a return of 5% per year on your investments over the next 25 years, which alternative should you take? Why?
b. Would your decision in part a) be different if you could earn 7% per year on your investments? Why or why not?
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