Question

1.Your grandparents fund an annuity for you that will pay you $5000 at the end of...

1.Your grandparents fund an annuity for you that will pay you $5000 at the end of each of the 4 years of your college. If the interest rate is 5% compounded annually, use the timeline illustration of the present value of an annuity to determine how much the grandparents must initially invest (present value) so you can enjoy their gift.

2. A business needs to borrow $24,000 for a building project. The manager of the business decides that he can repay the loan with five equal installments over a 5 year time period by making the loan payment at the end of each year. Interest on the unpaid balance of the loan will accumulate at the rate of 2.75%.

a.) Determine the yearly payment the manager will make each of the five years.

b.) Complete the table below, the amortization schedule for the above loan.

Year

Beginning Amount

Payment

Interest

Repayment of Principal

Balance

1

2

3

4

5

Totals
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Answer #1

1.

Your grandparents must initially invest (present value) so you can enjoy their gift is calculated in excel using timeline and screen shot provided below:

Grandparents must initially invest (present value) so you can enjoy their gift is $17,729.75.

2.

Loan amount = $24,000

Annual Interest rate = 2.75%

Tenure = 5 year

Annual Payment on loan is calculated in excel and screen shot provided below:

Annual Payment on loan is $5,203.16.

b.

Amortization schedule for loan is calculated in excel and screen shot provided below:

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