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Hint: use A = P(1+r/n)^(n*t)
another hint: the monthly payment figure they mention has no affect on the answer (it's put in there to throw you off)
I know it's not $2556.74
A = P(1+r/n)^(n*t) A = 2276(1+0.2349/12)^(12*0.5) A = 2556.74
Then I use the same formula as in the other question?
no you're done
that's the balance after 6 months
so you were second-guessing yourself
That's not the right answer
it says 2556.74 is wrong?
oooh let me try this
oh wait nvm
does it say which period after the deferment period ends?
like "2 months after the deferment period"?
well the balance at the 6 month mark is 2556.74 if no payments are made during that 6 month window
let's see what happens when payments of $112 are made instead
What is the balance after the deferment period if payments of $112 are made each month?
I think it's $1884.74 because if you multipy 112 by 6 months you get that answer
hmm not sure why, but the closest I'm getting is 1850.99, but that's nowhere near $1884.74
I wonder if it's implying that the interest is added after the payment is made
Not so sure, I'll just go with $1,884.74
Sakura purchased ski equipment for $1,248 using a six-month deferred payment plan. The interest rate after the introductory period is 23.79%. A down payment of $175 is required as well as a minimum monthly payment of $95. What is the balance at the beginning of the seventh month if only the minimum payment is made during the introductory period? A. $1,112.13 B. $637.13 Do you know which this one would be? I got $637.13 but i'm not to sure
the down payment of 175 means only 1248-175 = 1,073 is financed
so that's the only two choices?
No there were two more but those were wrong
ok nvm that then
I'm guessing the interest rate for the introductory period is not given or is it 0%?
hmm this is a tough one because you can choose not to pay during the deferment period (which I'm assuming is also the introductory period) but I'm trying various scenarios out and I'm not getting anything close I wish they would spell the process out clearer is there an example from the lesson we could use?
if so please post it thanks
No I looked through the lesson and everything was pretty crappy just like all these questions being given from this pretest
hmm makes me wish I could read your book/lesson alongside you I'm ok at finance, but stuff like this is making me think otherwise lol
would you know how to do this one?
Elliot is graduating from college in six months, but he will need a loan in the amount of $4,850 for his last semester. He may either receive an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly, or his parents may get a PLUS Loan with an interest rate of 7.8%, compounded monthly. The Stafford Loan has a grace period of six months from the time of graduation. Which loan will have a higher balance and by how much at the time of repayment? The PLUS Loan has a higher balance by $51.84. The Stafford Loan has a higher balance by $327.01. The Stafford Loan has a higher balance by $148.03. The PLUS Loan has a higher balance by $259.64.
I'll show you what i did first
Stafford Loan F = 4850*(1 + 0.068/12)^6 = 5017.25 PLUS Loan F = 4850*(1 + 0.078/12)^6 = 5042.25 Difference PL - SL = 5042.25 - 5017.25 = 28 but 28 isn't in any of the options
F = L(1 + r/n)^nt F = Future Value L = Initial Loan r = Interest Rate in Decimal Form n = Number of Compounding Periods Per Year (intra-annual) t = Number of Years Loaned
ok let me try it out
Stafford Loan F = P(1+r/n)^(n*t) = 4850*(1 + 0.068/12)^(12*12/12) = 5,190.28 PLUS Loan F = P(1+r/n)^(n*t) = 4850*(1 + 0.078/12)^(12*6/12) = 5,042.25 Difference 5,190.28 - 5,042.25 = 148.03
you forgot to do n*t in the exponent you just did t in the exponent
also, t is in years, so 6 months = 6/12 years 1 year = 12/12 months
Alright, thanks so much!
so The Stafford Loan has a higher balance by $148.03. yw
Theres one more question I need help with, or are you annoyed of this?
if i don't understand it, i get a bit frustrated lol but it's all in the learning process
that last one wasn't so bad since it was definitely more straight-forward
I wish I knew how to solve that second to last one though, which is why I wanted to see how the lesson would do it (to see an example)
Shanelle purchased a dining room set for $2,620 using a 12-month deferred payment plan with an interest rate of 19.49%. She did not make any payments during the deferment period. What will the total cost of the dining room set be if she must pay off the dining room set within two years after the deferment period? $2,620.00 $3,864.00 $5,796.00 $3,178.82
I think this is kinda like the question we could not figure out
a bit but this one is more clear though, it says "She did not make any payments during the deferment period"
A = P(1+r/n)^(n*t) A = 2620(1+0.1949/12)^(12*1) A = 3178.82 note: this is NOT the answer and a lot of people think it is (which is why this trap is thrown in here). This value is used to find the final answer.
3178.82 is the balance after the 12 month deferment period let's use this to find the monthly payment Use the formula P = L((r/n)*(1 + r/n)^(n*t))/((1 + r/n)^(n*t) - 1) where, P = monthly payment L = total amount loaned or amortized r = annual interest rate (APR) n = number of times interest is compounded per year (compounding frequency) t = time in years In this case, P = unknown (we're solving for this) L = 3178.82 r = 0.1949 (19.49% = 19.49/100 = 0.1949) n = 12 t = 2 P = L((r/n)*(1 + r/n)^(n*t))/((1 + r/n)^(n*t) - 1) P = 3178.82((0.1949/12)*(1 + 0.1949/12)^(12*2))/((1 + 0.1949/12)^(12*2) - 1) P = 160.99771204627 P = 161 So we know Payment per period: P = $161 Number of periods: n*t = 12*2 = 24 Total Amount Paid = (Payment per period)*(Number of periods) = ($161)*(24) = $3864 Total Cost is $3864.00
Thank you so much! I submitted it now and the Sakura one was 637.13
thanks, I'll have to go back over that and think how they got that
oh what was the answer to "Alex purchased a bedroom set for..." I don't think we got that either...hmm
It was $1,884.74
Ok I figured it out. Here's how it works. The rules are that if you pay off the entire balance (this is a big IF), then NO interest will apply. So if you manage to pay off the entire balance of $2,276 within 6 months (the deferred interest period), then you will be charged NO interest at all. However, companies know very well that the majority of the people will not be able to pay off the entire balance within 6 months. So this is when they retroactively charge interest to make a lot of money. So Alex could have made payments to fully pay off the $2,276 debt within 6 months...BUT...Alex made payments of $112 for 6 months, which means he really only paid 6*112 = 672 dollars toward the balance and he's nowhere close to paying off the entire balance of $2,276 So here's what happens a) Alex did make 6 payments of $112 or $672 total over 6 months. So subtract this from the initial balance to get: 2,276 - 672 = 1604. Notice how the balance is not $0. So the balance was not paid for in full. If it was $0, then Alex can walk away without having to make any more payments. It's not $0, so we move onto b) b) Because the balance was NOT paid in full by the end of the 6 month deferment period, this means that interest is applied for every month in the 6 month deferment period. All of this is applied to the initial balance and payments are not factored in (yet). So, P*(1+r/n)^(n*t) = 2276*(1+0.2349/12)^(12*6/12) = 2,556.74 c) The balance is now 2,556.74 dollars. This would be the final answer if Alex did not make any payments at all during this 6 month period. However, alex did make monthly payments of $112 and he paid the company $672 so far. So that is subtracted from the balance to get 2,556.74 - 672 = 1,884.74 So that explains why the remaining balance after the 6 month deferment period is $1,884.74 The same basic steps are applied to the problem with Sakura as well.
Yeah, that's what I did
For the Alex one
ok great, glad you figured it out
Hey sorry to bother you but theres a question just like the Alex one Farrah installed a new pool for $14,730 using a 12-month deferred payment plan with an interest rate of 19.33%. What is the balance after the deferment period if payments of $527 are made each month? $14,370.00 $17,843.62 $8,046.00 $11,519.62 My brother tried to do this with me and he got $8046.00 whereas I got $11,519.62 I did exactly what you said for the Alex question like 14730(1+0.1933/12)^(12*12/12) = 17843.62 THEN I took 527*12months and got 6324 Subtracted 17843.62 - 6324 = 11519.62 I'm pretty confident with my answer but my brother is telling me I'm wrong?
your brother would be right if the interest wasn't applied retroactively, but it is
$11,519.62 is the correct answer
it would be nice if it was as simple as saying initial balance - (# of months)*(payment per month) 14730-12*527 8,406 but it's not that simple and that trap is thrown in there to catch students off guard
Ah okay, thanks :) again!
Garrett is graduating from college in twelve months, but he will need a loan in the amount of $6,785 for his last two semesters. He may either receive an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly, or his parents may get a PLUS Loan with an interest rate of 7.8%, compounded monthly. The Stafford Loan has a grace period of six months from the time of graduation. Which loan will have a higher balance at the time of repayment and by how much? The PLUS Loan has a higher balance by $72.54. The PLUS Loan has a higher balance by $112.83. The Stafford Loan has a higher balance by $177.86. The Stafford Loan has a higher balance by $250.40 Is C the right answer?
Stafford Loan A = P(1+r/n)^(n*t) A = 6785(1+0.068/12)^(12*1.5) A = 7511.43390604005 A = 7511.43 ------------------------------- PLUS Loan A = P(1+r/n)^(n*t) A = 6785(1+0.078/12)^(12*1) A = 7333.56596333002 A = 7333.57 ------------------------------- The Stafford Loan has the higher balance Difference: 7511.43 - 7333.57 = 177.86 So C is definitely the correct answer