QUESTION 1

a) You want to buy a new sports car from Muscle Motors for $43,400. The contract is in the form of a 60-month annuity due at an APR of 6.65 percent.

Required:

What will your monthly payment be?

b) You make $6,000 annual deposits into a retirement account that pays 10.9 percent interest compounded monthly.

Required:

How large will your account balance be in 34 years?

c) You have just purchased a new warehouse. To finance the purchase, you've arranged for a 37-year mortgage loan for 75 percent of the $3,370,000 purchase price. The monthly payment on this loan will be $17,000.

Requirement :

What is the APR on this loan?

What is the EAR on this loan?

d) A 14-year annuity pays $2,800 per month, and payments are made at the end of each month. The interest rate is 12 percent compounded monthly for the first seven years, and 10 percent compounded monthly thereafter.

Required:

What is the present value of the annuity?

e) Find the APR, or stated rate, in each of the following cases. (Use 365 days in a year. Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

Stated Rate (APR)Number of Times Compounded Effective Rate (EAR)

% Semiannually 14.75%

% Monthly 10.75

% Weekly 10.25

% Daily 8.25

f) An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company:

First birthday:$880

Second birthday:$880

Third birthday:$980

Fourth birthday:$980

Fifth birthday:$1,080

Sixth birthday:$1,080

After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $420,000.

Required:

If the relevant interest rate is 12 percent for the first six years and 7 percent for all subsequent years, what is the value of the policy at the child's 65th birthday?

g) Rooster Co. has identified an investment project with the following cash flows.

Year Cash Flow

1 $970

2 760

3 1,430

4 1,790

Requirement 1:

If the discount rate is 9 percent, what is the present value of these cash flows? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Present value$

Requirement 2:

What is the present value at 17 percent?

h) What is the present value of $2,625 per year, at a discount rate of 9 percent, if the first payment is received 7 years from now and the last payment is received 21 years from now? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Value today

i) Prepare an amortization schedule for a three-year loan of $108,000. The interest rate is 9 percent per year, and the loan agreement calls for a principal reduction of $36,000 every year. How much total interest is paid over the life of the loan? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Leave no cells blank. You must enter '0' for the answer to grade correctly.)

Year 1 2 3

Beginning

Balance

Total

Payment

Interest

Payment

Principal

Payment

Ending

Balance

Total interest$