Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $900 each. Your money is now invested in a bank that pays an 8% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual
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EBK FINANCIAL MANAGEMENT: THEORY & PRAC
- A friend asks to borrow $47 from you and in return will pay you $50 in one year. If your bank is offering an 6.5% interest rate on deposits and loans: a. How much would you have in one year if you deposited the $47 instead? b. How much money could you borrow today if you pay the bank $50 in one year? c. Should you loan the money to your friend or deposit it in the bank? a. How much would you have in one year if you deposited the $47 instead? If you deposit the money in the bank today you will have $____ in one year. (Round to the nearest cent.)arrow_forwardA person you trust foresees the need for a loan and suggests that you loan them $2,000 at the end of year 1, $1,000 at the end of year 2, nothing in year 3, and then they will pay you $1,000 in year 4, $2,000 in year 5, and $3,000 in year 6. They note that you will pay out a total of $3,000 to them, and then they will pay back $6,000 to you, allowing you to “double your money.” If you are able to make 12% per year on your investments, determine the present worth of this series of cash flows.arrow_forwardYou are a loan officer at the West Elm Savings and Loan. Mr. and Mrs. Brady are in your office to apply for a mortgage loan on a house they want to buy. The house has a market value of $170,000. Your bank requires 1 5 of the market value as a down payment. (a) What is the amount (in $) of the down payment? $ (b) What is the amount (in $) of the mortgage for which the Bradys are applying? $ (c) Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment? $ (d) What is the total amount (in $) of interest that will be paid over the life of the loan? $ (e) Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per year and the property insurance is…arrow_forward
- I need help for D, E, and G please You are a loan officer at the West Elm Savings and Loan. Mr. and Mrs. Brady are in your office to apply for a mortgage loan on a house they want to buy. The house has a market value of $170,000. Your bank requires 1/5 of the market value as a down payment. (a) What is the amount (in $) of the down payment? $ (b) What is the amount (in $) of the mortgage for which the Bradys are applying? $ (c) Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment? $ (d) What is the total amount (in $) of interest that will be paid over the life of the loan? $ (e) Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per…arrow_forwardYou are a loan officer at the West Elm Savings and Loan. Mr. and Mrs. Brady are in your office to apply for a mortgage loan on a house they want to buy. The house has a market value of $170,000. Your bank requires 1 5 of the market value as a down payment. (a) What is the amount (in $) of the down payment? $ (b) What is the amount (in $) of the mortgage for which the Bradys are applying? $ (c) Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment? $ (d) What is the total amount (in $) of interest that will be paid over the life of the loan? $ (e) Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per year and the property insurance is $1,458 per…arrow_forwardProblem #1. Jason's uncle loaned him $26,560 to help start a landscaping business. They agreed that Jason would pay off the entire loan plus 3.24% annually compounded interest in 4 years, and that in the meantime he would make monthly deposits into a bank account to make sure that he has the amount needed when the loan comes due. The bank will pay 2.09%. (a) Find the total amount Jason will need to repay the loan. Show your work. (b) How much should each of his monthly deposits be? Show your work.arrow_forward
- Assume that you and your best friend each have $1000 to invest. You invest your money in a fund that pays 10% per year compound interest. Your friend invests her money at a bank that pays 10% per year simple interest. At the end of 1 year, the difference in the total amount for each of you is: (a) You have $10 more than she does (b) You have $100 more than she does (c) You both have the same amount of money (d) She has $10 more than you darrow_forwardYour wealthy uncle established a $2,500 bank account for you when you were born. For the first 8 years of your life, the interest rate earned in the account was 6%. Since then rates have been only 4%. Now you are 21 years old and ready to cash in. How much is in your account?arrow_forwardJace is trying to determine how to invest $1,234.56 that he inherited from his cousin Elijah. He has the following options at his bank. Certificate of Deposit that pays 4.25% simple interest.Savings Account that pays 3.95% compounded annually.How much will the CD be worth if he left the money untouched for 30 years? A) $2,808.66 B) $5,246.88 C) $4,303.23 D) $28,086.60arrow_forward
- Dave invests $3,700 in a savings account at his local bank which gives 3.296 simple annual interest. He also invests $3,000 in an online savings account which gives 5.9% simple annual interest. After 15 years, which one will have earned more interest, and how much more interest will it have earned, to the nearest dollar? (Use I = Prt) The online account has $879 more than the local bank b. The online account has $179 more than the local bank C. The local bank has $776 more than the online account. d. The local bank: has $345 more than the ontine account.arrow_forwardA long time ago Lisa had put an amount of $50,000 into an investment in the securities market. Now she has $150,000 in her investment account. Required: Lisa has another option for her plan to buy a new house: Using $150,000 as a deposit and get a mortgage from a bank to buy the new house. ANZ bank offered Lisa the lending interest rate of 4.85% per year, compounding semi-annually. Commonwealth Bank offered her a lending rate of 4.83% per year, compounding monthly. By calculating EAR, identify which bank should Lisa choose? Lisa decided to borrow 350 000 from Commonwealth Bank to buy her new home. The bank offers Lisa a lending rate of 4.83% per year (compounding monthly) and she is expected to make an equal mortgage payment each month for 30 years. Calculate the monthly payment Lisa needs to make for the mortgage? Lisa would like to buy some furniture for the new home. Good Home Furniture offered her the maximum payment credit for the furniture she can buy of $50 a week for one…arrow_forwardMs. Whitmell is helping her two friends, Sally and Johnny, invest money to save for the future. Sally has $1200 and it is going into a bank account that pays 3.8% per annum, compounded quarterly. Johnny has $1500 going into a bank account that pays 2.5% per annum, compounded semi-annually. When, if ever, will Johnny and Sally have the same amount of money in their bank accounts? **Make sure to check the units of your final answer**arrow_forward