Question

8. Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make? Round to the nearest number of periods. 9. You are ready to retire. A glance at your 401(k) statement indicates that you have $2,750,000. If the funds remain in an account earning 4.5% annually, how much could you withdraw at the end of each year for the next 30 years? Round to two decimal places. 10. If you wish to accumulate $280,000 in the child's college fund after 18 years, and can invest at a 7.5% annual rate, how much must you invest at the end of each year if the first deposit is made at the end of the first year? Round to two decimal places.

Answer 1

Solution for Q8.
To calculate the number of payments to be paid for the repayment of loan of $50,000 with an annual payment of $6,202.70 at an interest rate of 9% per year, following steps to be followed on Microsoft Excel:

Step 1: Select the "FORMULAS" Tab at the top and click the drop down arrow of the option "Financial"

Step 2: Select the option "NPER"

Step 3: Type Rate = 0.09
PMT = 6202.7
PV = -50000
Fv and Type to be left blank and press ENTER

You will get the NPER as 15.001

Hence, the company has to pay an annual instalment of $6,202.70 for around 15 Years to repay the loan of $50,000.

Solution for Q9.

To calculate the amount of that can be withdrawn at the end of each year for next 30 years at an interest rate of 4.5% annually, following steps to be followed on Microsoft Excel:

Step 1: Select the "FORMULAS" Tab at the top and click the drop down arrow of the option "Financial"

Step 2: Select the option "PMT"

Step 3: Type Rate = 0.045
NPER = 30
PV = -2750000
Fv and Type to be left blank and press ENTER

You will get the PMT as $168,826.74

Therefore, you can withdraw an amount of $168,826.74 every year for the next 30 years.

Solution for Q10.

To calculate the amount to be invested at the end of every year for the next 18 years to accumulate $280,000 at an interest rate of 7.5% yearly, following steps to be followed on Microsoft Excel:

Step 1: Select the "FORMULAS" Tab at the top and click the drop down arrow of the option "Financial"

Step 2: Select the option "PMT"

Step 3: Type Rate = 0.075
NPER = 18
FV = -280000
Pv and Type to be left blank and press ENTER

You will get the PMT as $7848.11

Therefore. you need to invest $7848.11 every year for next 18 years to accumulate $280,000.