Question

1. You need a 20-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 8.1 percent APR for this 240-month loan. However, you can afford monthly payments of only $900, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. Required: How large will this balloon payment have to be for you to keep your monthly payments at $900?

2. You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a month in a stock account and $400 a month in a bond account. The return of the stock account is expected to be 11 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a 8 percent return. Required: How much can you withdraw each month from your account assuming a 25-year withdrawal period?(Do not round your intermediate calculations.)

3. You are planning to make monthly deposits of $170 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 15 years?

4. Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $27,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $589,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $1,700 per month for the next 15 years. Required: If he can earn a 11 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 16 through 30?

5. Dinero Bank offers you a $28,000, 9-year term loan at 8 percent annual interest. Required: What will your annual loan payment be? (Do not round your intermediate calculations.)

6. The present value of the following cash flow stream is $6,925 when discounted at 11 percent annually. Year Cash Flow 1 $1,200 2 ? 3 1,500 4 2,100 Required: What is the value of the missing cash flow?

Answer #1

1.

=FV(8.1%/12,240,900,-240000)=669403.835861322

2.

=PMT(8%/12,12*25,-700/(11%/12)*((1+11%/12)^(12*30)-1)-400/(6%/12)*((1+6%/12)^(12*30)-1))=18253.220750324

3.

=FV(8%/12,12*15,-170)=58826.4976739553

4.

=-PMT((1+11%)^(1/12)-1,12*15,PV((1+11%)^(1/12)-1,12*15,0,PV((1+8%)^(1/12)-1,12*25,27000,750000))+589000-FV((1+11%)^(1/12)-1,12*15,-1700))=6893.91010353621

5.

=PMT(8%,9,-28000)=4482.23185681585

6.

=(6925-1200/1.11-1500/1.11^3-2100/1.11^4)*1.11^2=4144.53403883613

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