How much could you borrow if you could afford to make payments of $150 at the end of each month for 4 years at 5% compounded monthly? How much interest would you pay?

i = r/ppy = .05/12 = 0.00416666...

Since the periodic rate is a repeating decimal, we will calculate it as part of the future value calculation. We do not simply round this value off and use it. That would lead to inaccurate results.

n = t * ppy = 4 * 12 = 48

PV = PMT[1 - (1+i)^{-n}]/i = 150[1 - (1 + 0.05/12)^{-48}]/(0.05/12)= $6,513.44

15011.0512480.0512**6513.443**

The interest is the difference between what you got out and what you put in (keeping in mind that you got less than you put in):

I = n*PMT - PV = 48 * 150 - 6,513.44 = $686.56

**Using the TI-83 TVM Solver**

Set the TVM variables as follows:

N=48 I%=5 PV=? PMT=-150 (representing cash outflow) FV=0 P/Y=12 C/Y=12 PMT:END

Move the cursor to the PV variable and press .

How much would you have to pay at the end of each quarter if you borrowed $20,000 for 10 years at 5.2% compounded quarterly?

i = r/ppy = 0.052/4 = 0.013

n = t * ppy = 10 * 4 = 40

PMT = PV*i/[1-(1+i)^{-n}] = 20000*0.013/(1 - 1.013^{-40}) = $644.39

200000.01311.01340**644.3875802**

**Using the TI-83 TVM Solver**

Set the TVM variables as follows:

N=40 I%=5.2 PV=-20000 PMT=? FV=0 P/Y=4 C/Y=4 PMT:END

Move the cursor to the PMT variable and press .