Question

I recently returned from a trip to India. I was inspired to go by that film about the Marigold Hotel. I stayed there but I didn't find any of the adventures you see in the movie. I was expecting late-blooming love but that didn't happen. But I am not one to give up, so I am planning to buy the hotel. The owner says I can buy it for a down payment of $100,000 and monthly payments of $25000 for five years. Money is 9% compounded quarterly. How much interest is she charging me? No decimal places.

Answer 1

To calculate the interest charged, we need to use the formula for compound interest. A = P (1 + r/n) ^(nt) Where

A = the future value of the loan.

The interest charged is $52,500.

P = the principal amount (the down payment of $100,000)
r = the annual interest rate (9%)
n = the number of times the interest is compounded per year (quarterly, so 4)
t = the number of years (5)

First, let's convert the annual interest rate to a decimal: 9% = 0.09.

Next, let's substitute the values into the formula and calculate the future value:

A = 100,000(1 + 0.09/4)^(4*5)
A = 100,000(1 + 0.0225)^(20)
A = 100,000(1.0225)^(20)

Using a calculator, we find that (1.0225)^20 is approximately 1.525.

Now, let's calculate the future value:

A = 100,000 * 1.525
A = 152,500

The future value (A) is $152,500.

To find the interest charged, we subtract the principal amount from the future value:

Interest = A - P
Interest = 152,500 - 100,000
Interest = 52,500

The interest charged is $52,500.