Question

15). 15) John's Auto Repair just obtained an interest-only loan of $35,000 with annual payments for 10 years and an interest rate of 8 percent. What is the amount of the loan payment in Year 8? A) $4,280.00 S D B) $4.918.07 SWEDE C) $5,216.03 D) $2,800.00 E) $5,211.06 16) _ 16) Four years ago, Saul invested $500. Three years ago, Trek invested $600. Today, these two investments are each worth $800. Assume each account continues to earn its respective rate of return. Which one of the following statements is correct concerning these investments? A) One year ago, Saul's investment was worth less than Trek's investment. B) Three years from today, Trek's investment will be worth more than Saul's. C) Trek earns a higher rate of return than Saul. D) Trek has earned an average annual interest rate of 9.86 percent. E) Saul has earned an average annual interest rate of 12.64 percent.

Answer 1

Q15)

• Loan payments are annual
• Loan is interest only so interest is paid for 10 years, at the end of which the entire loan is paid back in one single payment
• Interest calculation for year 8 = Interest rate x loan
  • 0.08 x 35000 =  $2,800.00
• So D is the correct option

Q16)The formula for amount in case of compound interest is as follows:

• 
  Amount = Principal x (1 + rate) time
  
• We are given, that
  Amounttrek = Amount Trek = 800
  
• 
  Amountsaul = 500 X (1+rate sau)
  
  • 
    800 = 500 x (1 + rate saul)
    
  • 
    ratesqu = 12.468%
    
• 
  Amounttrek = 600 x (1 + ratet rek)
  
  • 
    800 = 600 x (1 + rateTrek)
    
  • 
    rateTrek = 10.064%
    
• Options C, D, E can be eliminated as they are wrong
• One year ago, Saul & Trek would have
  • 
    Amountsauli, = 500 x (1 + 12.468%) = 711.31
    
  • 
    AmountTrek -1 = 600 x (1 + 10.064%)2 = 726.85
    
• So option A is also correct.
• This leaves us with Option B to be the incorrect one, we can verify the same too
  • 3 years from now, Saul & Trek will have
  • ​​​​​​​
    Amountsaus = 500 x (1 + 12.468%)' = 1138.10
    
  • 
    Amounttreks-, = 600 x (1 + 10.064%)2 = 1066.67
    
  • So Option B is also wrong
• Option A is correct