Question 1

Part A

Whats the present value of a perpetuity that pays $3000 per year if the appropriate interest rate is 8%?

Part B

You set up a college fund in which you pay $3000 each year at the end of the year. How much money will you have accumulated in the fund after 8 years, if your fund earns 15% compounded annually?

Part C

What is the effective annual rate (EAR) of 6% compounded monthly?

Part D

Your bank offers you a 36-month, 3% APR car loan for a $50000 new Mercedes SLK300 Roadster. What will your monthly payment be?

Part E

You found your dream house. It will cost you $200000 and you will put down $35000 as a down payment. For the rest you get a 30-year 4.5% mortgage. What will be your monthly mortgage payment in $ (assume no early repayment)?