Extra Problem 1- Monthly Payment - Solution Key

Extra Problem 1- Monthly Payment - Solution Key - EMGT 269...

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EMGT 269 – Elements of Problem Solving and Decision Making Question by Instructor: Dr. J. Rene van Dorp EXTRA PROBLEM 1: MONTHLY LOAN PAYMENT Suppose you are planning to buy a new car. The car costs \$25000, you have been approved for financing the loan with a 5 year term through the car dealer and the annual interest rate on the loan is 5% - compounded monthly. A. Using the following notation B = Loan Balance (i.e. in description above B=\$25000) R = Annual Interest Rate (i.e. in description above R=0.05) MP = Monthly Payment derive the monthly payment MP as a function of B and R by setting the net present value of the cash-flow of monthly payments of size MP for the term of the loan equal to the loan amount B. Hint: Use the relationship 1 1 1 - - = + = x x x x n n j j

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EMGT 269 – Elements of Problem Solving and Decision Making Question by Instructor: Dr. J. Rene van Dorp ANSWER: Derive the monthly payment MP as a function of B and R by setting the net present value of the cash-flow of monthly payments of size MP for the term of the
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Extra Problem 1- Monthly Payment - Solution Key - EMGT 269...

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