Question 1

Webster Mining is considering the purchase of a new sorting machine. The quote consists of quarterly payments of $16,000 for 4 years at an annual interest rate of 6% (APR with quarterly compounding).

Part1

If the first payment begins one quarter after date of purchase. What is the purchase price of the equipment?

Part2

If the first payment begins one year after the date of purchase. What is the purchase price of the equipment?

Question 2

In order to save for your retirement, you want to save $10,000 every year for 35 years, starting one year from now. The annual interest rate on your savings account is 8%.

How much money will you have in your account in 35 years?

Question 3

In order to save for your child's college education, you want to save $300 every month for 20 years, starting one month from now. The monthly interest rate on your savings account is 0.4%.

How much money will you have in your account in 20 years?

Question 4

You are 21 years old today. Starting one month from now, if you deposit $400 per month for 32 years into your retirement account which earns 0.8 percent per month, are you a millionaire by age of 53?

Part1

Find out how much money you will have by age of 53. If that number is greater than one million, then you area millionaire by that age.

Part2

Find out how many months it takes to reach one million of saving. If the length of time is less than 32 years, then you shold be a millionaire by age of 53. Should give you the same conclusion as in Part 1.

Question 5

Jake owes $2,600 on his credit card. He is not charging any additional purchases because he wants to get this debt paid in full. The card has an annual rate of 16.8%.

Part1

How long does it take to pay off this balance if he only makes monthly minimum payments of $30? Can you find an answer? Why?

a. cannot find an answer

b. a long time

c. about 20 years

d. about 10 years

Part2

What if he makes monthly payments of $45? How many months will it take to pay off the credit card debt?

Question 6

You just turned 21 years old and want to retire when you turn 65. You expect to withdraw $100,000 per year for 25 years during retirement, starting first withdrawal one year after your 65thbirthday.

You expect to earn a return of 5% on your investments every year.

Part1

How much retirement saving do you need to have by 65th birthday to support the withdrawals in the next 25 years? Or the same question can be asked differently, what is the present value (as of your 65thbirthday) of the withdrawals you expect to make?

Part2

How much money should you save each year if you make the first deposit one year from your 21th birthday and the last one on 65th birthday?

Question 7

You just took out a 15-year traditional fixed-rate mortgage for $400,000 to buy a house. The interest rate is 8.4% (APR) and you have to make payments monthly.

Part1

What is your monthly payment?

Part2

How much of your first monthly payment goes towards paying down the outstanding balance (in $)?

Part3

How much of your 13thmonthly payment goes towards paying down the outstanding balance (in $)?

Question 8

Your company took out an amortizing loan with the following terms:

Amount 5,000

Term (years) 30

Interest rate 6%

Part1

What is the annual payment (as a positive number)? Use Excel's PMT() function.

Part2

Create an amortization table in Excel. What is the outstanding balance at the end of the first year?

Part3

What is the outstanding balance at the end of year 20?

Part4

What is the outstanding balance at the end of year 30?