Question

Joe is getting ready to buy a car. He has $20,000 in investments earning 4.9% annually. The car also costs $20,000. If he doesn’t pay cash for the car, Joe can get a loan at 2.9% interest for 5 years. The loan is structured so that Joe pays one balloon payment at the end of 5 years. The balloon payment includes the principal plus all interest accrued over 5 years. If Joe takes the loan will he have enough money available from his investments to make the balloon payment? How much will he be short/have to spare?

Answer 1

I = PRT

I = 20,000 * 0.049 * 5

I = $4,900

~~~~~~~~~~~~~~~~~~~~~~~

I = 20,000 * 0.029 * 5

I = ?

Answer 2

well, you can use the Excel to solve this question. first, you can calculate two FV. then using the result of fv 25404.31-23073.15=2331.16 so, he can pay the balloon payment and will spare $2331.16