MA170wk10solns - MA170 Week 10 Report: Amortized Loans...

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MA170 Week 10 Report: Amortized Loans Name: _________SOLUTIONS_______ Lab: Fall 2010 1. [9 marks ] Henry plans to purchase a car worth $30 000 on January 1st of 2011 with a down payment worth 12% of the purchase price. The remaining cost will be covered by a loan with an interest rate of j 52 = 3% . The loan the purchase of the vehicle. (a) Determine the size of Henry’s weekly car payments. 30000 (0 : 88) = 26400 = Ra 52(5) e i ) R = 26400 1 1 + 0 : 03 52 ± 52(5) 0 : 03 52 : = $109 : 37 (b) Calculate Henry’s outstanding loan balance after two years using (i) the prospective method; Periods remaining: 5(52) 2(52) = 156 B 52(2) = Ra 5(52) 2(52) j = 109 : 37 0 B B B @ 1 1 + 0 : 03 52 ± 156 0 : 03 52 1 C C C A : = 16311 : 97 (ii) the retrospective method. B 52(2) = A (1 + i ) 104 Rs 104 j i = 26400 1 + 0 : 03 52 ± 52(2) 109 : 37 0 B B B @ 1 + 0 : 03 52 ± 52(2) 1 0 : 03 52 1 C C C A : = $16312 : 84 (c) Which of the two methods used in (b) is more accurate, and why? but the retrospective method uses the value of all payments already made, which will be the rounded value 1
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2. [9 marks ] Five years ago a company borrowed $100 000. The loan agreement stipulated that the loan would be amortized over a 10 year period and would be repaid with quarterly payments at j 2 = 6%
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This note was uploaded on 03/03/2012 for the course MATH 170 taught by Professor F.vinette during the Fall '11 term at Wilfred Laurier University .

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MA170wk10solns - MA170 Week 10 Report: Amortized Loans...

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