DSC1630 Introductory Financial Mathematics Solution Assignment 03

DSC1630 Introductory Financial Mathematics Solution Assignment 03 Mabe borrowed an amount of money from his father. The loan will be paid back by means of payments of R25 000 each every second month for six years. An interest rate of 7,5% per year, compounded every two months, will be applicable. The amount of the loan is [1] R900 000,00. [2] R1 127 887,64. [3] R400 738,72. [4] R238 067,35. [5] R721 181,68. In this problem we have equal payments in equal time periods plus the interest rate that is specified is compounded. Thus we are working with annuities. As the payments are not specified as being paid at the beginning of the period we assume them as being paid at the end of each time period. We thus have to calculate the present value of an ordinary annuity or P = Ra n i . Now given is the payments of R25 000, the interest rate of 7,5% compounded every two months, thus m = 6, and the time period t as 6 years. The time line is: