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2) You are buying a house and need to borrow $150,000 (mortgage) from the bank to pay for it. The terms of the mortgage are
2) You are buying a house and need to borrow $150,000 (mortgage) from the bank to pay for it. The terms of the mortgage are as follows: 30 years, annual payments (with the first one occurring one year from today), an interest rate of 5% per year, nothing owed (no balloon) at the end. What is the annual payment that the bank expects you to pay them i.e. what payment amortizes the loan)? 3) You win the lottery and are told you won $20 million. You actually won $1 million every year for the next 20 years (first payment 1 year from today). a) If your required rate of return is 10%, how much would you accept today in exchange for those 20 payments? b) If the first payment were to be made today, what would you accept today in exchange for all 20 payments? (again assume a 10% required return) 4) Planning for your retirement, you decide you need to have $3 million, 30 years from today. You plan to make equal yearly payments beginning one year from today into a retirement account that will earn 14% per year. The last payment is made 30 years from today. a) What is the payment size? b) What will be the payment if you start making payments 12 years from today? 2) You are buying a house and need to borrow $150,000 (mortgage) from the bank to pay for it. The terms of the mortgage are as follows: 30 years, annual payments (with the first one occurring one year from today), an interest rate of 5% per year, nothing owed (no balloon) at the end. What is the annual payment that the bank expects you to pay them i.e. what payment amortizes the loan)? 3) You win the lottery and are told you won $20 million. You actually won $1 million every year for the next 20 years (first payment 1 year from today). a) If your required rate of return is 10%, how much would you accept today in exchange for those 20 payments? b) If the first payment were to be made today, what would you accept today in exchange for all 20 payments? (again assume a 10% required return) 4) Planning for your retirement, you decide you need to have $3 million, 30 years from today. You plan to make equal yearly payments beginning one year from today into a retirement account that will earn 14% per year. The last payment is made 30 years from today. a) What is the payment size? b) What will be the payment if you start making payments 12 years from today
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