1. Sylvia is negotiating the purchase of a car, and she determines that she must borrow $20,000. She is offered financing at an annual interest rate, i, with monthly payments beginning one month after the loan is made. She can repay the loan over a 2 year period (24 payments) at $592.15 per month, or over a 3 year period (36 payments) at $426.64 per month (the same interest rate for both cases).
Find the interest rate i and the monthly amount payable if she were to repay the loan over a 4 year period (48 payments) at this same interest rate.
2. Ralph and Silvana are looking at two different stocks, Profetto Group Inc. and ACME Inc. They see that the ACME Inc. stock currently pays dividends of $8 with a compound rate of r = 0.005. Both stocks currently sell for the same price, $320.
What is the annual interest rate?
HINT: Use the Dividend Discount Model formula
1. Sylvia is negotiating the purchase of a car, and she determines that she must borrow $20,000. She is offered financing at an annual interest rate, i, with monthly payments beginning one month after the loan is made. She can repay the loan over a 2 year period (24 payments) at $592.15 per month, or over a 3 year period (36 payments) at $426.64 per month (the same interest rate for both cases).
Find the interest rate i and the monthly amount payable if she were to repay the loan over a 4 year period (48 payments) at this same interest rate.
2. Ralph and Silvana are looking at two different stocks, Profetto Group Inc. and ACME Inc. They see that the ACME Inc. stock currently pays dividends of $8 with a compound rate of r = 0.005. Both stocks currently sell for the same price, $320.
What is the annual interest rate?
HINT: Use the Dividend Discount Model formula
