1A) Starting today, you make monthly deposits of $25 to an account paying 5% annual interest, compounded daily (using a 365 - day year). What will the balance be in seven years?

1B) Your friend offers you an investment opportunity, which pays $1,000 in 15 months (i.e. 456 days) for $850. Your bank currently offers a 6.76649% nominal rate compounded daily. Assuming both opportunities carry the same risk, which should you choose? Why?

1C) For your birthday present, you are offered the following choices:

a) A gift of $1,000

b) or a subsidized balloon loan of $5000. The terms of the loan is 1% APR and all interest and principle must be paid back at the end of five years (no loan repayments made during each year; i.e. this is a lump sum or balloon loan: repayment of principal + compounded interest occurs at the end of five years,

c) or an annuity - style amortized loan. The terms of this loan is a 5-year annuity at 1% APR, i.e. the annual payments are the same amount with principal and interest component in them.

Which of the above option would you take if you are able to invest cash at 10% APR?

Explain with TVM calculations. Assume all interest rates are compounded annually.

1D) Joe is planning for retirement. He plans to work for 25 more years. For the next 10 years, he can save $3,000 per year (with the first deposit being made one year from now), and at that time, he wants to buy a $40,000 car. How much will he save in years 11 through 25 so that he has exactly $300,000 saved up when he retires? Assume that he can earn 10% interest compounded annually for each of the next 25 years.

1E) Your nephew plan to save for a 4-year local community college education. He will begin college at age 18 and will need $4000 per year at the end of each year of those college years. Starting one year from today, he will make $1,987 of deposit each year till he starts college. Interest rate is 6% compounded annually. How old is he now?

1F) You plan to buy a small apartment. It costs $300,000. You plan to put a 10% down payment and pay the rest by taking a 30-year mortgage at a fixed interest rate of 7.25%.

a) What is your monthly mortgage?

b) At the end of five years, the mortgage company allows you to refinance your mortgage at a fixed interest rate of 6.25% at no refinancing cost (lucky you) What will your new monthly mortgage payment be henceforth?

c) What if there is a $5,000 additional re - financing cost?

d) As in (c), how much lower must any re-fi mortgage rate be in order to make it worthwhile to refinance?

e) If in (b), there is 1-point attached to the 6.25% re-fi rate, then what is the Adjusted APR of this mortgage rate?