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interest

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Question

1-
Your uncle borrows $67,000 from the bank at 9 percent interest over the seven-year life of

the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Annual Payments_______

b. How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

First payment: Interest:_______

First payment: Principal_______

c. How much of his second payment will be applied to each? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Second payment: Interest:_______

Second payment: Principal_______

 
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You wish to retire in 10 years

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Question

1-
You wish to retire in 10 years, at which time you want to have accumulated enough money to

receive an annual annuity of $20,000 for 15 years after retirement. During the period before retirement you can earn 11 percent annually, while after retirement you can earn 13 percent on your money.

What annual contributions to the retirement fund will allow you to receive the $20,000 annuity?  (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Annual Contribution_____

2-

Del Monty will receive the following payments at the end of the next three years: $18,000, $21,000, and $23,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $24,000 per year.

At a discount rate of 10 percent, what is the present value of all three future benefits? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)  

Present value of all future benefits______

3-

Your parents have accumulated a $140,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $23,000 to help her get started, and they have decided to take year-end vacations costing $9,000 per year for the next four years. Use 9 percent as the appropriate interest rate throughout this problem. 

a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then? (Round your final answer to 2 decimal places.)

Funds available for graduate school______

b. You plan to work on a master’s and perhaps a PhD. If graduate school costs $25,100 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.)

Number of years_____

 
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rate of return

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Question

1-
At a growth (interest) rate of 6 percent annually, how long will it take for a sum to

double? To triple? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Time needed to double____years

Time needed to triple_____years

2-

Annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due).

What is the future value of a 13-year annuity of $2,800 per period where payments come at the beginning of each period? The interest rate is 9 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

future value____

3-

Franklin Templeton has just invested $9,760 for his son (age one). This money will be used for his son’s education 19 years from now. He calculates that he will need $35,235 by the time the boy goes to school.

What rate of return will Mr. Templeton need in order to achieve this goal? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Rate of return_____%

 
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If you insulate your office for $23,000

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Question

If you insulate your office for $23,000, you will save $2,300 a year in heating expenses. These savings will last

forever.

a. What is the NPV of the investment when the cost of capital is 8%? 10%?

b. What is the IRR of the investment? (Enter your answer as a whole percent.)

c. What is the payback period on this investment?

 
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