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10/25 More work with annuities, mortgages, etc Simple interest Compound interest Present value effective rate Annuity Present value of annuity.

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Presentation on theme: "10/25 More work with annuities, mortgages, etc Simple interest Compound interest Present value effective rate Annuity Present value of annuity."— Presentation transcript:

1 10/25 More work with annuities, mortgages, etc Simple interest Compound interest Present value effective rate Annuity Present value of annuity

2 Common #2 Matt won a prize in the lottery of $4000, payable $2000 immediately and $2000 plus 7% simple interest payable in 250 days. Getting impatient, Matt sells the promissory note to Nancy for $1960 cash after 130 days. Using a nominal 360 day year, find the simple interest rate, rounded to.01, earned by Nancy.

3 Common #2 You plan on taking a 4 year hiatus to relax. If you plan on making monthly withdrawals of $2900 from a money market account that pays 4.30% compounded monthly to finance your inactivity, how much must you invest at the outset to be able to afford this?

4 Common #3 If you can afford a monthly payment of $870 for 32 years and if the available interest rate is 4.80%, what is the maximum amount that you can afford to borrow?

5 Common #4 You plan on buying equipment worth 24000 dollars in 2 years. Since you firmly believe in not borrowing, you plan on making bi-weekly payments into an account that pays 4.20% compounded bi-weekly. How much must your payment be?

6 Bank A is offering an interest rate of 6.80% compounded monthly, while bank B is offering an interest rate of 6.77% compounded quarterly. Which bank offers the better effective rate?

7 Common #10 A company contributes $160 per month into a retirement fund paying 5.20% compounded monthly and employees are permitted to invest up to $ 2300 per year into another retirement fund which pays 5.20% compounded annually. How large can the combined retirement fund be worth in 26 years?

8 Common #11 If you finance $132000 of the purchase of your new home at 5.10% compounded monthly for 17 years, how much would the monthly payment be?

9 Common #12 If you finance $50000 of the purchase of your new home at 4.40% compounded monthly for 15 years, the monthly payment will be $379.95. If instead your had a rate of 5.40% compounded monthly for 10 years, the monthly payment will be $540.16. How much do you pay in total for the $50000 mortgage if you finance it for 15 years? How much do you save (in total payments) if you finance for 10 years instead?


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