Part. 1 Part 2. Part. 3

Problem 4-38 Calculating Loan Payments You need a 35-year, fixed-rate mortgage to buy a new home for $260,000. Your mortgage bank will lend you the money at an APR of 5.55 percent for this 420-month loan. However, you can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,000? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Balloon payment Problem 4-54 Calculating Annuities You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 30 annual payments of $270,000, with the first payment being delivered today. The income will be taxed at a rate of 30 percent. Taxes will be withheld when the checks are issued. b. You will receive $550,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from today, you will receive $220,000 each year for 29 years. The cash flows from this annuity will be taxed at 30 percent. Using a discount rate of 6 percent, what is the present value of your winnings for each option? (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Present value of Option A b. Present value of Option B Problem 4-14 Calculating Perpetuity Values The Perpetual Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $17,500 per year forever. a. If the required return on this Investment is 5.7 percent, how much will you pay for the policy? (Round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the Perpetual Life Insurance Co. told you the policy costs $420,000. At what discount rate would this be a fair deal? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Present value b. Interest rate