An investor wants to determine how much interest he must earn to be able to make the payments on a 10-year mortgage which has increasing annual payments. The problem is summarized in the accompanying spreadsheet. The investor has enough money to make an initial investment of $9,000 and hopes he can earn 12%, compounded quarterly, on his investments. He would like to know how low his annual return can be and still allow him to make his payments from interest income. What formula goes in cell C7 of the spreadsheet?
A) =B7*(1+$C$3/4)^4-B7
B) =B7*(1+$C$3)-B7
C) =B7*($C$3/4)^4-B7
D) =B7*(1+$C$3/4)^4

Question

An investor wants to determine how much interest he must earn to be able to make the payments on a 10-year mortgage which has increasing annual payments. The problem is summarized in the accompanying spreadsheet. The investor has enough money to make an initial investment of $9,000 and hopes he can earn 12%, compounded quarterly, on his investments. He would like to know how low his annual return can be and still allow him to make his payments from interest income. What formula goes in cell C7 of the spreadsheet? 
A) =B7*(1+$C$3/4)^4-B7 
B) =B7*(1+$C$3)-B7 
C) =B7*($C$3/4)^4-B7 
D) =B7*(1+$C$3/4)^4

Quizplus · Accepted Answer

Cell C7 should include the formula that calculates the amount of interest (in dollars) the investor needs to earn quarterly in order to make the increasing mortgage payments. The formula should be calculated using the initial investment amount, the mortgage payment amount, the number of quarters in a year, and the annual interest rate. Therefore, the correct formula is =B7*(1+$C$3/4)^4-B7, as it multiplies the initial investment by the quarterly interest rate (1+$C$3/4) to find the investment growth over the year, subtracts the initial investment from that amount to find the interest earned for the year, and divides by the number of quarters to find the quarterly interest needed to make mortgage payments.

An Investor Wants to Determine How Much Interest He Must