Additional questions for Chapter 6:

Jacks parents wish to save some money for Jacks college education. Now Jack is 8 years old, and his parents hope that they can save $80,000 ten years from now. They wish to make equally annual end-of-year deposits in a savings account paying annual interest of 6%, so they must determine what size annuity will result in a lump sum equal to $80,000 at the end of year 10. Can you help them to solve the problem? How about monthly base deposit?

Mary plans to buy a house priced at $150,000 now. She wishes to make a 20% down payment, and the bank will loan her the rest at 3% per year. The loan will be paid off in 30 years. What will be the monthly payments? What will be the monthly payments if the loan is paid off in 15 years? What are the differences between the two plans?

a. Suppose you owe $2,000 on a VISA card, and the interest rate is 1.5% per month. What are the APR and EAR?

b. If you make the minimum monthly payments of $80, how long will it take you to pay it off?

c. If you would like to pay it off within one year, what is the minimum payment you must make each month?

4. Leasing or Purchasing: You would like to replace your current car but have not determined if purchase a car or lease a car. You visited several local car dealers, and the following are the options:

a. Leasing:

1) Down payment of $3,000;

2) Three-year leasing contract, monthly payment of $198;

3) The choices at the end of year 3:

You can walk away without any obligations or have the car with $7,500 payment.

b. Purchasing:

1) The current price is $15,500, and you can have 10% down, 60 months payments;

2) Current interest rate for auto loan is 3%.

What is your choice? Leasing or purchasing?