Asked by Michelle Carrey on May 30, 2024
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A mortgage broker offers to sell you a loan contract that would provide you with end-of-month payments of $900 for the next 2342 \frac{3}{4}243 years. In addition, at the end of the 2342 \frac{3}{4}243 year period, you will also receive a lump sum payment of $37,886. What should you pay for the contract, if you require a rate of return of 7.2% compounded monthly?
Compounded Monthly
Interest that is compounded monthly accumulates interest on the principal amount on a monthly basis, effectively increasing the interest earned over time due to the compounding effect.
Lump Sum Payment
A large single payment made at a particular time, as opposed to multiple smaller payments.
Rate of Return
The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.
- Cultivate the competency to understand and calculate the present and future values of cash flows and annuities.
- Apply assorted compounded interest rates over a range of durations to gauge the value of investments or loans.
Verified Answer
EO
Learning Objectives
- Cultivate the competency to understand and calculate the present and future values of cash flows and annuities.
- Apply assorted compounded interest rates over a range of durations to gauge the value of investments or loans.