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Vijay's tuition at Stanford for the next year is $32,000. His parents have decided to pay the tuition by making nine monthly payments. If the interest rate is 9%, what is the monthly payment?

$3,690.22

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Glen borrowed $10,000 for his college education at 8% compounded quarterly. Three years later, after graduating and finding a job, he decided to start paying off his loan. If the loan is amortized over five years at 9%, find his monthly payment for the next five years.

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Miscellaneous application problems

For the following four problems, assume a $200,000 house loan is amortized over 30 years at an interest rate of 10.4%.

Find the monthly payment.

$1,814.54

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Find the balance owed after 20 years.

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Find the balance of the loan after 100 payments.

$187,161.43

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Find the monthly payment if the original loan were amortized over 15 years.

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Mr. Patel wants to pay off his car loan. The monthly payment for his car is $365, and he has 16 payments left. If the loan was financed at 9%, how much does he owe?

$5483.87

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An amount of $2000 is borrowed for a year at a rate of 18%. Make an amortization schedule showing the monthly payment, the monthly interest on the outstanding balance, the portion of the payment going toward reducing the debt, and the balance.

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Fourteen months after Dan bought his new car he lost his job. His car was repossessed by his lender after he had made only 14 monthly payments of $376 each. If the loan was financed over a 4-year period at an interest rate of 10.3%, how much did the car cost the lender? In other words, how much did Dan still owe on the car?

$11,046.79

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You have a choice of either receiving $5,000 at the end of each year for the next 5 years or receiving $3000 per year for the next 10 years. If the current interest rate is 9%, which is better?

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Mr. Smith is planning to retire in 25 years and would like to have $250,000 then. What monthly payment made at the end of each month to an account that pays 6.5% will achieve his objective?

$333.85

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Assume Mr. Smith has reached retirement and has $250,000 in an account which is earning 6.5%. He would now like to make equal monthly withdrawals for the next 15 years to completely deplete this account. Find the withdrawal payment.

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A ten-year $1,000 bond pays $35 every six months. If the current interest rate is 8.2%, find the fair market value of the bond.

Hint: You must do the following.

  1. Find the present value of $1000.

  2. Find the present value of the $35 payments.

  3. The fair market value of the bond = a + b size 12{"The fair market value of the bond"=a+b} {}

  1. $447.70
  2. $471.48
  3. $919.18
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Find the fair market value of the ten-year $1,000 bond that pays $35 every six months, if the current interest rate has dropped to 6%.

Hint: Again, you must do the following.

  1. Find the present value of $1000.

  2. Find the present value of the $35 payments.

  3. The fair market value of the bond = a + b size 12{"The fair market value of the bond"=a+b} {}

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Classification of finance problems

Let the letters A size 12{A} {} , B size 12{B} {} , C size 12{C} {} , D size 12{D} {} , E size 12{E} {} and F size 12{F} {} be represented as follows:

A = FV of a lump-sum size 12{A= ital "FV"" of a lump-sum"} {}
B = PV of a lump-sum size 12{B= ital "PV"" of a lump-sum"} {}
C = FV of an annuity size 12{C= ital "FV"" of an annuity"} {}
D = Sinking fund payment size 12{D="Sinking fund payment"} {}
E = Installment payment size 12{E="Installment payment"} {}
F = PV of an annuity size 12{F= ital "PV"" of an annuity"} {}

For the following problems, Classify, by writing the appropriate letter in the box, and write an equation for solution.

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Source:  OpenStax, Applied finite mathematics. OpenStax CNX. Jul 16, 2011 Download for free at http://cnx.org/content/col10613/1.5
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