1. You have decided to buy a house. You have 50,000 in savings and are able to afford payments of $750 twice a month (payable at the end of each period). You want to use an amortization period of 20 years and current interest rates are 3.5% compounded monthly. You think the mortgage rates might change so you decide to arrange a mortgage with a 4 year mortgage agreement.

a. What r value should be used in your calculations?

b. How much are you able to borrow?

c. What is the maximum value of the house you can afford to purchase?

d. How much will you still owe after three years?

e. How much have you paid in interest by the end of the three-year mortgage agreement?

2. Its January 1 and you started thinking about retirement. You decide that on the last day of each month for the next 30 years you will make a contribution into a retirement account. The retirement accounts pay an interest rate of 3.5% per year compounded quarterly. Once retired your retirement dreams are to be able to withdraw $5500 per month for the next 40 years beginning immediately upon retirement. At the start of the tenth year after retirement you also want to give your beloved cat a gift of $25,000 so she can live out her nine lives comfortably as well.

a. What R value should be used in your calculations?

b. What is the amount of money you will need to afford your monthly withdrawal during retirement?

c. How much money in total will you need to have saved when you retire?

d. How much must you save each month to make this retirement dream possible?