145. After saving diligently your entire career, you and your spouse are ready to retire with a
nest egg of $500,000. You need to invest this money in a mix of stocks and bonds that will allow
you to earn $4,000 per month for 30 years. What annual interest rate (APR) do you need to earn?
146. Which of the following will increase the future value of an annuity?
147. Which of the following will increase the present value of an annuity?
148. Explain why the effective annual rate (EAR) is a more accurate measure of the interest
rate paid than the annual percentage rate (APR)?
149. What is the difference between an annuity due and an ordinary annuity?
150. How might credit card companies keep their cardholders in debt for a long time?
151. The interest on your home mortgage is tax deductible. Why are the early years of the
mortgage more helpful in reducing taxes than the later years?
152. Describe how compounding affects the future value computation of an annuity.
153. Future Value and Annuity Payments Chandler and Monica are trying to decide if they
will have enough money to retire early in 15 years, at age 60. Their current assets are $250,000 in
retirement plans and they have $80,000 in other investments. Together, they contribute $30,000
per year to their retirement plans and another $6,000 to other investments. If their assets grow at
9 percent per year, how much money will they have when they turn 60? After they retire, they will
invest their wealth more conservatively and it will earn 6 percent per year. Is this enough to fund
a $150,000 per year retirement for 30 years?
154. Present Value of an Annuity Carrie and Miranda earn the same salary. However,
Miranda has been far more financially responsible. She pays her bills on time and pays off her
credit card debt quickly. Carrie had been less financially responsible. She often buys too many
shoes and has allowed her credit card balance to balloon. If she is short on cash for a month, she
simply decides to not even pay the minimum balance due on her credit card. Now they both are
looking to buy apartments. Miranda decides she can afford to make $2,500 payments, but Carrie
can only make $2,000 payments and pay off her credit card debt, too. Miranda qualifies for a 6.5
percent, 30-year mortgage, but because of her bad credit rating Carrie will be charged 8 percent
on a 30-year mortgage. Both will put 20 percent down. How is Carrie’s bad credit going to impact
her apartment search?
155. Present Value of an Annuity Carrie and Miranda earn the same salary. However,
Miranda has been far more financially responsible. She pays her bills on time and pays off her
credit card debt quickly. Carrie had been less financially responsible. She often buys too many
shoes and has allowed her credit card balance to balloon. If she is short on cash for a month, she
simply decides to not even pay the minimum balance due on her credit card. Now they both are
looking to buy apartments. Miranda decides she can afford to make $3,500 payments, but Carrie
can only make $1,500 payments and pay off her credit card debt, too. Miranda qualifies for a 6
percent, 30-year mortgage, but because of her bad credit rating Carrie will be charged 7.5
percent on a 30-year mortgage. Both will put 20 percent down. How is Carrie’s bad credit going to
impact her apartment search?
156. Compound Frequency Say that you own a small business, which you plan to expand.
Your expansion plans include borrowing $100,000 from the bank with a five-year, amortized loan.
157. Annuity Payments and Amortization Schedule Consider Carrie asks Miranda to help
with her 20 percent down payment on her apartment. Miranda is willing to loan Carrie $30,000,
but she is requiring 6.5 percent interest and semi-annual payments over three years to repay the
loan. Carrie wants to deduct the loan’s interest from her taxes, and Miranda must show the
interest income on her taxes, so they need to know how much interest is included each year in
the payments. Compute the semi-annual payments and create an amortization schedule to
determine the interest paid each year.
158. Loan Payments You wish to buy a $20,000 car. The dealer offers you a 3-year loan with
an 8 percent APR. What are the monthly payments? How would the payment differ if you paid
interest only? What would the consequences of such a decision be?
159. Loan Payments You wish to buy a $30,000 car. The dealer offers you a 4-year loan with
a 6 percent APR. What are the monthly payments? How would the payment differ if you paid
interest only? What would the consequences of such a decision be?