Question 1

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

Accepted Answer

The answer of Say that you purchase a house for...

Question 2

You deposit $1,000 today and want to save $100 each month beginning one month from today. Your account earns a 5 percent annual interest rate. How long will it take you to accumulate $5,000?

Accepted Answer

To solve this problem, we can use the future value of a series formula for the monthly deposits and add the future value of the single lump sum deposit. The future value of a series formula is $ FV = P \times \frac{(1 + r)^n - 1}{r} $, where $P$ is the monthly payment, $r$ is the monthly interest rate, and $n$ is the number of payments. The future value of a single sum is $ FV = P \times (1 + r)^n $.Given:- Monthly deposit ($P$) = $100- Annual interest rate = 5%, so the monthly interest rate ($r$) = 5%/12 = 0.0041667- Initial deposit = $1,000We want to find $n$ such that the total future value is $5,000.First, calculate the future value of the initial deposit separately, as it does not grow at the same rate as the monthly deposits due to its immediate investment.For the initial $1,000 deposit, the future value formula simplifies to $ FV = P \times (1 + r)^n $, but we'll incorporate this into our total at the end since it's a separate calculation from the monthly deposits.For the monthly deposits, we rearrange the future value of a series formula to solve for $n$, but given the complexity of solving for $n$ directly due to the nature of the equation (it involves logarithms), we typically use financial calculators or software for precise calculations.Using a financial calculator or software with the inputs: $P = 100$, $r = 0.0041667$, and a target $FV = 5000 - FV$ of the initial deposit, we find that it takes approximately 35.7 months to accumulate $5,000, including the growth of the initial $1,000 deposit and the monthly deposits of $100 each.This calculation assumes the interest compounds monthly and that all deposits are made at the end of each month. The exact time can vary slightly based on the method of calculation or rounding, but option B is the closest and correct choice based on the standard approach to solving these types of financial problems.

Question 3

Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $4,800 each year into your new employer's plan. If the rolled-over money and the new contributions both earn a 7 percent return, how much should you expect to have when you retire in 38 years?

Accepted Answer

The future value of the rolled-over amount and the annual contributions can be calculated separately and then summed. The rolled-over amount grows to $91,000 * (1 + 0.07)^38. The future value of the annual contributions is calculated using the future value of an annuity formula: $4,800 * [(1 + 0.07)^38 - 1] / 0.07. Adding these two amounts gives the total expected amount at retirement.

Question 4

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Accepted Answer

The answer of Due to poor spending habits, Ricky has...

Question 5

A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,500 per month for the next 3 years and then $500 per month for three years after that. If the bank is charging customers 10 percent APR, how much would it be willing to lend the business owner?

Accepted Answer

The loan amount is the present value of the future cash flows. The first 3 years have monthly payments of $1,500, and the next 3 years have monthly payments of $500. Using the formula for the present value of an annuity and the given APR of 10% (or 0.8333% per month), the present value of these cash flows is approximately $57,980.57.

Question 6

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what would the loan balance be in seven years?

Accepted Answer

The answer of Say that you purchase a house for...

Question 7

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. Assume you get a 15-year mortgage with a 6 percent interest rate. If the house appreciates at a 2 percent rate per year, what will be the value of the house in seven years? How much of this value is equity?

Accepted Answer

The answer of Say that you purchase a house for...

Question 8

Chase purchased a $30,000 car three years ago using a 10 percent, 5-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

Accepted Answer

To find the minimum price Chase would need to receive for his car to pay off the balance of his loan, we need to calculate the remaining balance of a 10 percent, 5-year car loan after three years of monthly payments. Using the formula for the remaining balance of an installment loan or an amortization calculator, we can determine that the correct answer is $13,813.25. This calculation takes into account the interest accrued over the three years and the principal amount paid down during that time.

Question 9

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Accepted Answer

The answer of Due to poor spending habits, Ricky has...

Question 10

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much would you have to deposit each month in a savings account earning 3.5 percent APR, compounded monthly, to be able to pay the $3,500 bill in three years?

Accepted Answer

To calculate the monthly deposit required to save up $3,500 in three years with an account that has a 3.5% APR compounded monthly, we use the future value of a series formula: $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $FV$ is the future value ($3,500), $P$ is the monthly payment, $r$ is the monthly interest rate (3.5% APR / 12 months = 0.002916), and $n$ is the total number of payments (3 years * 12 months = 36). Rearranging the formula to solve for $P$ gives us $P = FV \times \frac{r}{(1 + r)^n - 1}$. Plugging in the values gives $P = 3500 \times \frac{0.002916}{(1 + 0.002916)^{36} - 1}$, which calculates to approximately $92.35.

Question 11

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

Accepted Answer

The answer of Your 30-year $95,000 mortgage calls for payments...

Question 12

Consider that you are 30 years old and have just changed to a new job. You have $91,000 in the retirement plan from your former employer. You can roll that money into the retirement plan of the new employer. You will also contribute $400 each month into your new employer's plan. If the rolled-over money and the new contributions both earn a 7 percent annual return, how much should you expect to have when you retire in 38 years?

Accepted Answer

The answer of Consider that you are 30 years old...

Question 13

A small business owner visits his bank to ask for a loan. The owner states that she can repay a loan at $1,250 per month for the next three years and then $500 per month for two years after that. If the bank is charging customers 12 percent APR, how much would it be willing to lend the business owner?

Accepted Answer

The present value of the loan payments can be calculated using the formula for the present value of an annuity. The first three years have monthly payments of $1,250, and the next two years have monthly payments of $500. The bank's APR of 12% translates to a monthly interest rate of 1%. Calculating the present value of these cash flows gives approximately $45,058.15.

Question 14

You win $1,000 today, which happens to be your 20th birthday. You decide to deposit this money in an account and plan to add $1,000 to it each year on your birthday beginning one year from today. If you earn 10 percent per year in the account, how long will it take to grow to $750,000?

Accepted Answer

The future value of an annuity formula can be used to calculate the time needed to reach $750,000. Given the initial deposit, annual contributions, and interest rate, it takes approximately 44.44 years to reach the target amount.

Question 15

Chase purchased a $23,000 car three years ago using a 14 percent, 6-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

Accepted Answer

The answer of Chase purchased a $23,000 car three years...

Question 16

You have secured a loan from your bank for two years to build your home. The terms of the loan are that you will borrow $120,000 now and an additional $52,000 in one year. Interest of 9 percent APR will be charged on the balance monthly. Since no payments will be made during the 2-year loan, the balance will grow. At the end of the two years, the balance will be converted to a traditional 30-year mortgage at a 6.5 percent interest rate. What will you pay as monthly mortgage payments (principal and interest only)?

Accepted Answer

The answer of You have secured a loan from your...

Question 17

A mortgage broker is offering a $225,000 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 2.5 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 8.5 percent APR. What are the mortgage payments in the first two years? What are the mortgage payments after the second year?

Accepted Answer

The answer of A mortgage broker is offering a $225,000...

Question 18

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much money would you have to deposit now in a savings account earning 3.5 percent APR, compounded monthly, to pay the $3,500 bill in three years?

Accepted Answer

The answer of A local furniture store is advertising a...

Question 19

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?

Accepted Answer

The answer of Due to poor spending habits, Ricky has...

Question 20

Your client has been given a trust fund valued at $1 million. She cannot access the money until she turns 68 years old, which is in 12 years. At that time, she can withdraw $30,000 per month. If the trust fund is invested at a 7 percent interest rate, how many months will it last your client once she starts to withdraw the money?

Accepted Answer

The future value of the trust fund after 12 years at 7% interest is calculated, and then the number of months it will last with $30,000 monthly withdrawals is determined. The correct calculation shows it will last approximately 99.05 months.

Quiz 5: Time Value of Money 2: Analyzing Annuity Cash Flows

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

You deposit $1,000 today and want to save $100 each month beginning one month from today. Your account earns a 5 percent annual interest rate. How long will it take you to accumulate $5,000?

Due to poor spending habits, Ricky has accumulated $5,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 16.75 percent! If he pays $200 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what would the loan balance be in seven years?

Chase purchased a $30,000 car three years ago using a 10 percent, 5-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, in total, how much interest expense does Ricky pay to the credit card company?

Your 30-year $95,000 mortgage calls for payments to be made at the end of each month. The loan has a 5.85 percent annual interest rate. What is the remaining balance after five years?

You win $1,000 today, which happens to be your 20th birthday. You decide to deposit this money in an account and plan to add $1,000 to it each year on your birthday beginning one year from today. If you earn 10 percent per year in the account, how long will it take to grow to $750,000?

Chase purchased a $23,000 car three years ago using a 14 percent, 6-year car loan. He has decided that he would sell the car now if he could get a price that would pay off the balance of his loan. What is the minimum price Chase would need to receive for his car? (Assume monthly payments.)

Due to poor spending habits, Ricky has accumulated $10,000 in credit card debt. He has missed several payments and now the annual interest rate on the card is 18.95 percent! If he pays $175 per month on the card, how long will it take Ricky to pay off the card?