You may answer these problems using Excel. Please see the accompanying Upload spreadsheet for help with Problem 3 (the Upload spreadsheet is blank for Problems 1 and 2). Please upload your finished Excel file to the D2L Dropbox.

Problem 1

You have decided that you will go to law school after graduation, which will be a 3-year program. You want to borrow enough money to cover all 3 years of law school (tuition, books, lodging, food, etc.), which you estimate to be $145,000. You go to the bank, and work out a plan for a loan with a customized repayment option since you will not be earning money for the next 3 years while in school. The bank will let you borrow $145,000 now, and you can pay it back over the next 20 years (240 months) according to the following plan:

For the next 3 years (month 1 to month 36), since youll be in graduate school, you will make a smaller monthly payment, which well call X.

After that, since youll have a job, you will pay 5X from month 37 through month 84.

After month 84 you anticipate that you can afford to increase your payment, so from month 85 through 240, you will pay 12X each month. After your last payment in month 240, the loan will be completely paid off.

The monthly interest rate is 0.55%

Find X. (Hint: you will need to use Solver of Goal Seek for this. Set up the monthly loan payments, but be careful to take the customized repayment plan into account.)

Problem 2

Pat is the type to plan everything in advance, and she is already starting to plan for retirement. She currently has $0 in her retirement account. She plans to work for 40 years, and then retire for the following 30 years. She expects to spend $120,000 in your first year of retirement, with a 4% growth rate. She will increase her working-years savings rate by 7.5% per year. While working, she expects her account will have a 6.75% return, and during retirement it will have a 4.75% return. After the 30^th year of retirement, she wants to have $600,000 in her account for safety net and bequest reasons (It is fine if the amount is not exactly $600,000 due to rounding error).

To solve the problem, determine how much Pat needs to save in year 1 to accomplish her retirement goals (use Solver or Goal Seek).

Problem 3

Mortgage rates are still at relatively low levels. Bill decides to explore the possibility of refinancing his mortgage (i.e. replace his original mortgage with a new mortgage). He contacts a local lender to determine the terms under which he can refinance.

The outstanding balance on the Bill's mortgage is $234,000. The local lender presents Bill with three alternative loan options. All three loans are standard 30-year fixed-rate mortgages (with monthly payments). The loans differ in terms of the stated interest rate on the loan and the fees due today to refinance.

The Upload spreadsheet contains the loan data. The shaded table describes the key loan parameters for each loan (interest rates are in annual terms). For each loan, compute the following:

The monthly loan payment assuming that the fees due today are paid separately with cash (i.e., the fees are not included as part of the loan).

The monthly loan payment assuming that the fees due today are rolled into the loan (i.e., added to the mortgage balance)

	Outstanding balance on mortgage:	$ 234,000.00
	Loan #1	Loan #2	Loan #3
Interest rate	4.500%	4.375%	4.250%
Total fees due at close	$ 3,020.50	$ 5,937.28	$ 8,019.60