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22.
How is the principal amount of an interest-only loan repaid?
23.
An amortized loan:
24.
You need $25,000 today and have decided to take out a loan at 7 percent
for five years. Which one of the following loans would be the least
expensive? Assume all loans require monthly payments and that interest is
compounded on a monthly basis.
25.
Your grandmother is gifting you $125 a month for four years while you
attend college to earn your bachelor's degree. At a 6.5 percent discount
rate, what are these payments worth to you on the day you enter college?
26.
You just won the grand prize in a national writing contest! As your prize, you
will receive $2,000 a month for ten years. If you can earn 7 percent on your
money, what is this prize worth to you today?
27.
Phil can afford $200 a month for 5 years for a car loan. If the interest rate is
7.5 percent, how much can he afford to borrow to purchase a car?
28.
You are the beneficiary of a life insurance policy. The insurance company
informs you that you have two options for receiving the insurance proceeds.
You can receive a lump sum of $200,000 today or receive payments of
$1,400 a month for 20 years. You can earn 6 percent on your money. Which
option should you take and why?
29.
Your employer contributes $50 a week to your retirement plan. Assume that
you work for your employer for another 20 years and that the applicable
discount rate is 9 percent. Given these assumptions, what is this employee
benefit worth to you today?
30.
The Design Team just decided to save $1,500 a month for the next 5 years
as a safety net for recessionary periods. The money will be set aside in a
separate savings account which pays 4.5 percent interest compounded
monthly. The first deposit will be made today. What would today's deposit
amount have to be if the firm opted for one lump sum deposit today that
would yield the same amount of savings as the monthly deposits after 5
years?
31.
You need some money today and the only friend you have that has any is
your miserly friend. He agrees to loan you the money you need, if you make
payments of $30 a month for the next six months. In keeping with his
reputation, he requires that the first payment be paid today. He also
charges you 2 percent interest per month. How much money are you
borrowing?
32.
You buy an annuity that will pay you $24,000 a year for 25 years. The
payments are paid on the first day of each year. What is the value of this
annuity today if the discount rate is 8.5 percent?
33.
You are scheduled to receive annual payments of $5,100 for each of the
next 7 years. The discount rate is 10 percent. What is the difference in the
present value if you receive these payments at the beginning of each year
rather than at the end of each year?
34.
You are comparing two annuities with equal present values. The applicable
discount rate is 8.75 percent. One annuity pays $5,000 on the first day of
each year for 20 years. How much does the second annuity pay each year
for 20 years if it pays at the end of each year?
35.
Trish receives $450 on the first of each month. Josh receives $450 on the
last day of each month. Both Trish and Josh will receive payments for next
four years. At a 9.5 percent discount rate, what is the difference in the
present value of these two sets of payments?
36.
What is the future value of $1,200 a year for 40 years at 8 percent interest?
Assume annual compounding.
37.
What is the future value of $12,000 a year for 25 years at 12 percent
interest?
38.
Alexa plans on saving $3,000 a year and expects to earn an annual rate of
10.25 percent. How much will she have in her account at the end of 45
years?
