Interest and Loan calculations

Interest and Loan MM255 UNIT 4 ASSIGNMENT The price of the used car is $18,700 and the down payment amount is $2,350. This implies that the amount to be financed is $16,350, that is the price of the car less the down payment. The car is intended to be financed over a period of 36 months and the monthly instalment is $516.95 for every month. Therefore, the total instalment amounts is $18,610.20, which is obtained by (516.95 × 36). The total amount financed is the sales tax together with the instalment amounts.

The sales tax is 7 percent of the price of the vehicle, which is $1,309. Therefore, the total financing amount is $19,919.20. The financing charges to be paid over the life of the loan is $3,569.20. The main advantage of paying cash is the evasion of paying financing charges. Imperatively, when a person pays for an item, in this case a car, the only amount paid is the price of the car together with any related fees. On the other hand, financing the vehicle includes the payment of the financing charges.

However, the main advantage to this approach is that a person is able to obtain the vehicle if he or she lacks finances at the moment. This can be done in monthly instalments until the total amount is fully repaid. In addition, by financing a vehicle a person is able to build up his or her own credit score when the vehicle is fully repaid on time. Moreover, the aspect of low interest rates will have the advantages of facing cheaper borrowing costs.

Financial lenders make use of an individual’s credit score to measure his or her financial accountability, consistency, and past. There are numerous advantages to having good credit as compared to bad credit when qualifying for a loan. To begin with, a good credit score enables an individual to be completely updates on his or her credit reports and also makes the person become qualified to obtain loans straightforwardly devoid of any difficulties.

In addition, the credit score facilitates a financial institution or lender in ascertaining the credit limit that can be sanctioned and the interest rate that can be set. Therefore, it is beneficial in having a good credit score in the long-term period, especially when one is in dire need of finances. When a person has a high credit score, then he or she may qualify for lower interest rates.

In the contemporary, employers have begun screening the credit scores of prospective personnel in order to perceive whether they have good or poor credit history. This is for the reason that it is deemed that individuals who pay their debts in a timely manner have a greater likelihood of being effective at work and evading issues of creditors visiting the work place to claim their money (Irby, 2017).

Future Value and Present Value Assignment Question 1: (10 Points) Calculate the future value of an investment of $8200, after 5 months, earning 6% APR, compounded monthly, by calculate manually. Reminder: Be sure to show your work, and to calculate the period interest before solving. Future Value = Present Value (1 + r)n = $8,200 (1 + 0.06)5 = $10,973.45 Question 2: (10 Points) Find the future value of a $15,000 Certificate of Deposit that pays compounded interest every three months at the rate of 6% per year. The CD has a term of 5 years.

a) Calculate the FV (Future Value) using the “Future Value or Compound Amount of $1.00” table in your textbook. Reminder: To use Table 13-1, you need to calculate the Number of Periods and the Interest Rate per Period. Every three months in a year = 4 periods Therefore, 5 years = 20 periods Annual rate of 6% per year implies that the interest rate per period is 2% FV = $1 (1 + i)n = $1 (1 + 0.02)20 = 1.4859 =15,000 × 1.4859 = $22,289.21 b) Calculate the FV (Future Value) using the formula: FV = P(1 + R)N Reminder: Always show work.

You can do this by stating the values that you are substituting into the formula. FV = 15,000 (1 + 0.02)20 = $22,289.21 c) How much interest was earned on the investment? Use either the result from Part 2a or Part 2b, since they are slightly different for your calculation. Interest = $22,289.21 - $15,000 = $7,289.21 Question 3: (10 Points) You inherit $45,000 and decide to invest.