Question
Question 1 (ammonization) You borrowed $63,000 at a 4.8% annual interest rate. You will pay off the loan with monthly payments over the next 10
Question 1 (ammonization) You borrowed $63,000 at a 4.8% annual interest rate. You will pay off the loan with monthly payments over the next 10 years
a) How much is each of your monthly payments? (1 point)
b) What is the interest portion of your 70th payment? (1 point)
c) What is the principle portion of your 50th payment? (1 point)
d) After 7 years, what will your outstanding balance be? (1 point)
Question 2 (2-step problem annuity) Suppose that you wish to retire in 35 years from today, and you will need $250,000 per year after you retire. The first retirement funds will be withdrawn one year from the day you retire and you will be making 28 such withdrawals. You can earn 5% annual interest on your retirement funds.
a) To have enough funds for retirement, how much must you deposit (a lump sum) in an account today? (2 points)
b) Suppose that you cannot afford to make a single lump sum deposit today. To have enough funds for your desire retirement, how much must you deposit at the end of each year for the next 35 years? Assume the last deposit will be made on the day you retire. (2 points)
Question 3 (2-step problem - perpetuity) Suppose that there is an investment that will pay you and your heirs $10,000 each year in perpetuity. If the first payment is to be received in 9 years, how much would you be willing to pay for it today? Assume a 5.0% annual interest rate. (2 points) Recall from FIN 3320: PV of perpetuity = (annual payment amount) / (annual interest rate)
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