Jim needs $1,000 to buy a new flat-screen TV.
Jim needs $1,000 to buy a new flat-screen TV. Since he has only $7, he borrows the remaining balance from his sister Mary. The loan will be repaid in 3 annual installments at an interest rate of 10%, compounded annually. The formula for calculating the monthly payment P is P = (L x C x r) / (C – 1) where L = amount of the loan, r = annual interest rate, and C = compounding factor = (1 + r)^N where N = number of annual payments. How much does Jim have to pay Mary at the end of each of the next 3 years (rounded to the nearest penny)?
Answer/Solution
$399.30
Steps/Work
L = 993
r = 0.1
C = 1.1^3 = 1.331
Insert all of these in the formula and we get
P = 993*1.331*0.1/0.331
In order to resolve above without a calc, we need to find the approx value of 0.1331/0.331 ~ 0.4~
~ 993*0.4
~ 397
Answer D
r = 0.1
C = 1.1^3 = 1.331
Insert all of these in the formula and we get
P = 993*1.331*0.1/0.331
In order to resolve above without a calc, we need to find the approx value of 0.1331/0.331 ~ 0.4~
~ 993*0.4
~ 397
Answer D