erry bought a house for $400,000 and made an $80,000 down payment. He obtained a 30-year loan for the remaining amount. Payments were made monthly. The nominal annual interest rate was 6%. After 10 years (120 payments) he sold the house and paid off the loan’s remaining balance.
a) What was his monthly loan payment? (6 points)
b) What must he have paid (in addition to his regular 120th monthly payment) to pay off the loan? (6 points)
8. Biodiesel fuel is an alternative fuel that will extend the usefulness of petroleum, reducing the need for foreign oil. It is also reported to have lower CO2 emissions, can be made from used oils and fats, thus providing a means for recycling what is considered waste products. And as a diesel fuel, biodiesel gets higher mpg than petroleum fuel. It is therefore a valuable alternative to petroleum fuel.
A construction firm can achieve a $15,000 cost savings in Year 1 and increasing by $2000 each year for the next 5 years by converting from diesel to biodiesel fuel. At an interest rate of 15%, what is the equivalent annual worth of the savings? (9 points)