Question
1. Bank A pays 4% interest compounded annually while Bank B pays 3.5% compounded daily. Which bank offers you a more attractive investment opportunity? 2.
1. Bank A pays 4% interest compounded annually while Bank B pays 3.5% compounded daily. Which bank offers you a more attractive investment opportunity?
2. When you purchased a house, you took out a thirty-year annual mortgage for $300,000 with an annual interest rate of 6% APR compounded monthly.
a) What is your monthly mortgage payment? b) How much of the first mortgage payment is repayment of principal? c) How much of the first mortgage payment is interest? d) How much of the second mortgage payment is interest? e) What is the balance on the loan at the end of four years? f) What is the total interest paid over the life of the loan? g) If you would like to keep the monthly payment the same as in the above described 30 year mortgage but instead borrow on a 15 year mortgage basis at a 5.75 APR compounded monthly, what is the maximum amount you can borrow?
3. Saving for Retirement: You are 20 years old. At the end of each year, starting at the end of this year (assume that today is January 1), you put $3,000 in a Roth IRA earning 8% per year and you continue making $3000 contributions every year through the end of the year when you reach 70. (assume that you turn 70 on Dec. 31.)
a) How much will you have in your retirement account at the end of the year at age 70?
b) If you live to be 100, how much can you withdraw from your IRA each year beginning at the end of the year when you are 71?
c) How much will you have in your retirement account at the end of the year when you reach 70 if you start your contributions at the end of next year (when you are 21)?
4. You save $2,000/year for 7 years and then stop saving, but leave what you have in the account untouched for the next 23 years. Your friend saves $2,000/year for 23 years. Who has more money if the interest rate is 10%?
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