Reference no: EM132606630

Question - Show the work for full credit. That means you have to type out the equation represented by the numbers from the problem.

For example, if a question asks you how much is the present value for an annuity of 10 years with annual payment of $20 and a discount rate of 7%.

You first have to type: PV = 20{1/0.07 - 1/[0.07(1+0.07)^10]}

Then use the excel function =pv(0.07,10,-20) to find the answer of $140.47.

The portions highlighted in red are the ones you have to type on your assignments.

1. A twenty-year-old wants to retire at 65 with $2 milliondollars in the retirement account. Suppose she can earn 8% APR on the investment. How much does she need to save per month?

2. Continue the previous question. If a 40-year-old wants to do the same thing, what will be his monthly payment?

3. Suppose you took out a $20,000 loan to buy a car. You have to pay off the loan in 40 months and the APR is 12%. How much is the monthly payment?

4. After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $35,000. The dealer has a special leasing arrangement where you pay $99 today and $499 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at 6% APR. You believe you will be able to sell the car for $23,000 in three years. What is the PV of leasing cost? What is the PV of the purchasing cost? Should you lease or purchase? Why?

5. What is the effective annual rate associated with an 8% APR when interest is compounded (1) annually (m=1); (2) semiannually (m=2); and (3) quarterly (m=4).

6. Big Dom's Pawn Shop charges an interest rate of 27 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is the effective annual rate?