Macy’s father will help her buy a house for $100,000 with a 10 – year loan. He does not mind lending her money at the same rate that his money market account provides, which is 6% per year. Macy feels she can give her dad $25,000 at the end of 10 years from her savings account while makingquarterly payments. What quarterly amount, paid at the end of every quarter, will shde have to give to her dad?
What would the quarterly payments be if made at the beginning of the quarter?
By the finish of the last year, that is the 10th year, the father of Macy will receive a sum of $100,000 via the following channels:
- A payment of $25000, this will be a one time payment.
- Over the next 10 years, there will be payments which will be done on the quarterly basis. This will sum up to be a total amount of $75000 at the end of the 10th year
For calculating the amount on the quarterly basis, the following formula can be used:
N = 10*4 (Since the payment will be done quarterly),
I = 6/4 = 1.5%(Since the payment will be done quarterly),
PV = 0, FV = 75000
=PMT(1.5%, 40, 0, 75000)
per quarter installment = $1382.03