Homework

Poor Dog, Inc. borrowed $135,000 from the bank today. They must repay this money over the next six years by making monthly payments of $2,215.10. What is the interest rate on the loan? Express your answer with annual compounding.

13. What is the formula for the Present Value (PV) for a finite stream of cash flows (1 per year) that lasts for 10 years?

a. What is the CD’s value at maturity (future value) if it pays 10 percent annual interest?

(a) In this question, two new payment alternatives have been mentioned. The first option (Payment B) consists of seven equal payments of $3,000 at the beginning of each year; this can be

1) Establish the principal and interest amount of the monthly payment. Using the 30 year loan principal and interest amount of the payment is $1,150.92

10. An investment of $1,000 today will grow to $1,100 in one year. What is the continuously compounded rate of return?

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much

12. Today, you deposit $10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?

A person deposited $500 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years, how much money will be in the savings account? (Bluman, A. G. 2005, page 230).

a. How much must be invested today in a CD paying 8.4 percent annual interest in order to

Suppose you take a mortgage for $72,764 for 16 years with annual payments.  If the annual interest rate is 3.4%, calculate the total interest amount paid over the life of the loan. That is, calculate the total interest paid in 16 years.

After the calculations you end up coming out with a rate of 14.87%. The third and final part of question three asks what rate you will need if the interest is compounded semiannually. All you have to do is double the amount of terms and you will come out with a lower number of 7.177%. Since the interest is compounded semiannually that means that you will need to times that number by two and you come out with your final number of 14.35%.

1. Assume that at retirement you have accumulated $825,000 in a variable annuity contract. The assumed investment return is 5.5% and your life expectancy is 18 years. What is the hypothetical constant benefit payment?

First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14

Assume that the annual payments in the sixth year is equal to the rental payment in the fifth year ( 112.9 and 86.0) and the remainder of the lump sum values (54.6 and 17.8) is due in the seventh year. With a discount rate of 5.4%, the present values of the rental payments for the years 2006 and 2007 are as follows: