Finance Midterm Ch6

What is the EAR of 14.9 percent compounded continuously?

16.07%

Assume a 1-year loan for $6,000 has an interest rate of 4.5 percent compounded annually. How much additional interest would be charged if the rate had compounded continuously rather than annually?

$6.17

Elena receives $450 on the first of each month. Harley receives $450 on the last day of each month. Both Elena and Harley will receive four years of payments. If the discount rate is 9.5 percent, what is the difference in the present value of these two sets of payments?

$141.80

You borrowed $185,000 for 30 years to buy a house. The interest rate is 4.35 percent compounded monthly. If you pay all of your monthly payments as agreed, how much total interest will you pay on this mortgage? (Round the monthly payment to the nearest whole cent.)

$146,542

Sai purchased a car today at a price of $8,500. He paid $600 down in cash and financed the balance for 48 months at 5.4 percent per year compounded monthly. What is the amount of each monthly loan payment?

$183.37

For the next 20 years, you plan to invest $600 a month in a stock account earning 7 percent and $400 a month in a bond account earning 4 percent. When you retire in 20 years, you will combine your money into an account with a return of 5 percent. How much can you withdraw each month during retirement assuming a 30-year withdrawal period?

$2,465.44

You would like to provide $125,000 a year forever for your heirs. How much money must you deposit today to fund this goal if you can earn a guaranteed 4.5 percent rate of return?

$2,777,778

You are seeking a fixed-rate mortgage of $195,000 with a term of 30 years. Your bank quotes an APR of 6.2 percent compounded monthly. You can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment?

$202,828.59

Assume you work for an employer who will contribute $60 a week for the next 20 years into a retirement plan for your benefit. At a discount rate of 9 percent, what is this employee benefit worth to you today?

$28,927.38

What is the future value of $8,500 invested at the end of each year for 40 years, at 10.8 percent interest compounded annually?

$4,681,062.12

This morning, you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The loan is to be repaid in equal monthly payments over 20 years with the first payment due one month from today. Assume each month is equal to 1/12 of a year and all taxes and insurance premiums are paid separately. How much of the second payment applies to the principal balance?

$426.11

You just won the lottery! Your prize begins with a payment of $10,000, which you will receive one year from today. Every year forever after, the payments will increase by 4 percent annually. What is the present value of your prize at a discount rate of 6 percent per year?

$500,000

You want to be a millionaire when you retire in 30 years and expect to earn 8.5 percent compounded monthly. How much more will you have to save each month if you wait 10 years to start saving versus if you start saving at the end of this month?

$989.10

Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent compounded monthly. How long will it be until you run out of money?

12.71 years

Your father helped you start saving $25 a month beginning on your fifth birthday. He always made you deposit the money into your savings account on the first day of each month just to "start the month out right." Today completes your 15th year of saving and you now have $6,528.91 in this account. What is the rate of return on your savings?

4.67%

You want to borrow $27,500 and can afford monthly payments of $650 for 48 months, but no more. Assume monthly compounding. What is the highest APR rate you can afford?

6.33%

Mr. Rich arranged for a mortgage loan for 65 percent of the $2.5 million purchase price of a home. The monthly payment will be $10,400 and the mortgage term is 30 years. What is the EAR on this loan?

6.82%

You are comparing two investment options that each pay 6 percent interest compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.)

Option B has a higher present value at Time 0.

A Canadian consol is best categorized as a(n):

perpetuity.

With an interest-only loan the principal is:

repaid in one lump sum at the end of the loan period.