Question 1

Alexis want to buy a house in 5 years.She wants to save $75,000 over the next five years for a down payment.If she can earn an annual rate of 9% on her savings,how much must she deposit in equal payments at the end of each month for the next five years to reach her goal?

Accepted Answer

To find the monthly deposit, we use the future value of an annuity formula: FV = Pmt * [(1 + r)^nt - 1] / r. Here, FV = $75,000, r = 0.09/12, n = 5 years, t = 12 months. Solving for Pmt gives approximately $994.38.

Question 2

Mark borrows $15,000 to buy a new car.His loan has an interest rate of 6.5%,compounded monthly,and his monthly payment is $293.49.If instead his loan had an interest rate of 8%,how much more would he have paid in interest by the time he finished repaying his loan in 60 months?

Accepted Answer

Using the original interest rate of 6.5%, we can calculate the total amount Mark will pay over 60 months:
$293.49/month * 60 months = $17,609.40 total paid
The amount of interest paid can then be calculated by subtracting the original loan amount:
$17,609.40 - $15,000 = $2,609.40 interest paid

Now we can calculate how much Mark would pay in interest with an interest rate of 8%:
First, we need to calculate the new monthly payment using the same repayment schedule:
$15,000 loan at 8% compounded monthly over 60 months:
$293.49 = [($15,000 * 0.08/12) / (1-(1+0.08/12)^(-60))] * 100
Monthly payment is now: $308.40
Total amount paid over 60 months: $18,504
Amount of interest paid: $3,504

To find the difference in interest paid, we can subtract the original interest paid from the new interest paid:
$3,504 - $2,609.40 = $894.60
Therefore, Mark would pay $894.60 more in interest with an interest rate of 8%, making choice C the correct answer.

Question 3

Adrian found a nice house today that is selling for $150,000.Assuming an inflation rate of 5 percent in the local real estate market,how much will this house sell for in five years?

Accepted Answer

To calculate the future value of the house in 5 years, we'll use the formula FV = PV x (1 + i)n, where FV is the future value, PV is the present value, i is the inflation rate, and n is the number of years.

Plugging in the values, we get: 
FV = $150,000 x (1 + 0.05)5
FV = $150,000 x 1.27628 
FV = $191,442

Therefore, the best choice is B. The future value of the house in 5 years is expected to be $191,442.

Question 4

Assume that Adrian will need $30,000 for his 20 percent down payment in five years.If he locates an investment with a 9 percent rate of return that compounds annually,which of the following is closest to the amount that he will have to save each year?

Accepted Answer

To find the amount Adrian needs to save each year, we use the future value of an annuity formula: FV = Pmt * [(1 + r)^n - 1] / r. Here, FV = $30,000, r = 0.09, and n = 5. Solving for Pmt gives approximately $5,013.

Question 5

Define an amortized loan and give two common examples.

Accepted Answer

The answer of Define an amortized loan and give two...

Question 6

It is now five years later,and Adrian has saved enough money for a 20 percent down payment on a house.He will have to borrow $135,000 in a 30-year loan with an annual interest rate of 6 percent compounded monthly.What will his monthly mortgage payment be?

Accepted Answer

The answer of It is now five years later,and Adrian...

Question 7

You have saved $120,000 for your child to attend college.If it is in an account earning an annual rate of 8%,how much can you take out in equal payments at the end of each of the next four years to pay for their education?

Accepted Answer

The answer of You have saved $120,000 for your child...

Question 8

Assuming that you can afford a car payment of $400 for 36 months,which of the following is closest to the annual interest rate you would need on a loan to borrow $12,000 for a new car?

Accepted Answer

The answer of Assuming that you can afford a car...

Question 9

Jah-Malya can afford a car payment of $400 per month for 48 months at an annual rate of 8.25 percent interest.Which of the following is closest to the amount she will be able to borrow for a new car?

Accepted Answer

The amount Jah-Malya can borrow is calculated using the formula for the present value of an annuity because the car payment is an annuity (a series of equal payments at regular intervals). The formula is P = PMT [1 - (1 + r)^-n] / r, where P is the present value (amount she can borrow), PMT is the payment amount ($400), r is the monthly interest rate (annual rate of 8.25% divided by 12 months = 0.6875%), and n is the total number of payments (48 months). Plugging in the values, we find that the amount closest to what she can borrow is approximately $16,306.

Question 10

Alexis is ready to buy her house.She will purchase the $450,000 house with her $75,000 down payment and finance the rest with a 20 year,6% annual rate mortgage with equal end of month payments.What will be her monthly payment?

Accepted Answer

The answer of Alexis is ready to buy her house.She...

Question 11

What recommendations would you offer to someone who is trying to break poor financial habits and save money in order to achieve his or her financial goals?

Accepted Answer

The answer of What recommendations would you offer to someone...

Question 12

For someone who has $100,000 to save for 20 years,would a 4% Certificate of Deposit that compounds annually be a better deal than a 3.94% Certificate of Deposit that compounds quarterly? Why?

Accepted Answer

The answer of For someone who has $100,000 to save...

Question 13

List at least five common examples of annuities.

Accepted Answer

The answer of List at least five common examples of...

Question 14

Mark borrows $15,000 to buy a new car.His loan has an annual interest rate of 6.5%,compounded monthly,and his monthly payment is $293.49.How much will he have paid in interest when he has finished repaying his loan in 60 months?

Accepted Answer

To find out the total amount of interest Mark will pay over 60 months, we need to first calculate how much he will pay in total over 60 months:
Total amount repaid = monthly payment x number of months
Total amount repaid = $293.49 x 60
Total amount repaid = $17,609.40

Now we can subtract the amount borrowed to find the total amount of interest paid:
Total interest paid = total amount repaid - amount borrowed
Total interest paid = $17,609.40 - $15,000
Total interest paid = $2,609.40

Therefore, the answer is C.

Quiz 3: Understanding and Appreciating the Time Value of Money