Chapter 5 Homework
What is the future value of a $680 annuity payment over four years if interest rates are 8 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$3,064.16
Assume that you contribute $390 per month to a retirement plan for 15 years. Then you are able to increase the contribution to $780 per month for another 25 years. Given a 6.0 percent interest rate, what is the value of your retirement plan after the 40 years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$1,046,949.03 Break the annuity streams into a level stream of payments of $390 for 40 years and another level stream of payments of $390 for the last 25 years.
What's the present value, when interest rates are 8.0 percent, of a $85 payment made every year forever? (Round your answer to 2 decimal places.)
$1,062.50
A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $2,700 per month for the next three years and then $5,400 per month for two years after that. If the bank is charging customers 9.25 percent APR, how much would it be willing to lend the business owner? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$174,025.45 Break the annuity streams into a level stream of payments of $5,400 for 5 years and another level stream of payments of $2,700 for the first 3 years.
What's the present value of a $540 annuity payment over five years if interest rates are 9 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$2,100.41
What's the present value, when interest rates are 7.5 percent, of a $185 payment made every year forever? (Round your answer to 2 decimal places.)
$2,466.67
Compute the future value in year 8 of a $5,900 deposit in year 1, and another $5,400 deposit at the end of year 3 using an 10 percent interest rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$20,194.19
What's the present value of a $850 annuity payment over five years if interest rates are 9 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$3,306.20
What is the future value of a $940 annuity payment over four years if interest rates are 8 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$4,235.75
You wish to buy a $24,500 car. The dealer offers you a 6-year loan with a 7.2 percent APR. What are the monthly payments? (Do not round intermediate calculations and round your final answer to 2 decimal places.) How would the payment differ if you paid interest only? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$420.06 payment per month $147 payment per month
You wish to buy a $10,300 dining room set. The furniture store offers you a 2-year loan with an APR of 7.2 percent. What are the monthly payments? (Do not round intermediate calculations and round your final answer to 2 decimal places.) How would the payment differ if you paid interest only? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$462.09 payment per month $61.80 payment per month
Compute the present value of a $3,700 deposit in year 3, and another $3,200 deposit at the end of year 5 if interest rates are 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
$5,115.12
If the present value of an ordinary, 6-year annuity is $8,400 and interest rates are 9.5 percent, what's the present value of the same annuity due? (Round your answer to 2 decimal places.)
$9,189
Joey realizes that he has charged too much on his credit card and has racked up $4,700 in debt. If he can pay $150 each month and the card charges 12 percent APR (compounded monthly), how long will it take him to pay off the debt? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
37.78 months
What's the interest rate of a 7-year, annual $3,800 annuity with present value of $20,000? (Use a time value of money calculator or a spreadsheet. Round your answer to 2 decimal places.)
7.68%
A perpetuity pays $220 per year and interest rates are 7.3 percent. How much would its value change if interest rates increased to 8.8 percent? (Round your answer to 2 decimal places.)
Change in value= $513.70
Payday loans are very short-term loans that charge very high interest rates. You can borrow $300 today and repay $363 in two weeks. What is the compounded annual rate implied by this 21 percent rate charged for only two weeks? (Hint: Compound the 2-week return 26 times for the annual return.) (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Compounded Annual Rate= 14,104.29%
Payday loans are very short-term loans that charge very high interest rates. You can borrow $320 today and repay $400 in two weeks. What is the compounded annual rate implied by this 25 percent rate charged for only two weeks? (Hint: Compound the 2-week return 26 times for the annual return.) (Do not round intermediate calculations and round your final answer to the nearest whole percent.)
Compounded Annual Rate= 32,987%
A loan is offered with monthly payments and a 8.50 percent APR. What's the loan's effective annual rate (EAR)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Effective Annual Rate = 8.84%
You are looking to buy a car. You can afford $530 in monthly payments for four years. In addition to the loan, you can make a $1,800 down payment. If interest rates are 9.00 percent APR, what price of car can you afford (loan plus down payment)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Present Value= $23,097.93
Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,700, respectively. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Present Value= $4,784.08
