Reference no: EM132961903
Question - Please help me with the following questions:
a. How is a home mortgage an example of Time Value of Money? What would you expect the impact of varying terms (years needed to pay off the loan) and rates to be using Time Value of Money rules? Why do homeowners sometimes refinance their mortgages?
1. If you invest $30,000 today at 5% compounded annually, how much will you have available for the down-payment on a house five years from now?
2. You just won the lottery and want to put some money away for your child's first year of college education. Freshman year in college will cost $40,000 in 18 years. You can earn 4% compounded annually. How much do you need to invest today?
3. Tom Brown will receive $10,000 a year for the next 15 years from his trust. If a 6 percent interest rate is applied, what is the future value of these payments?
4. You have just won $1 million in a lottery. The amount is to be paid out at the rate of $50,000 a year for the next 20 years. With a discount rate of 5 percent, what is the present value of your winnings?
5. How much would you have to invest today at 8% compounded annually to have $25,000 available for the purchase of a car four years from now?
6. You want to put some money away every year to save for the down payment on a house in five years. The down payment amount will be $50,000. You can earn 8% compounded annually. How much do you need to invest yearly?
7. What is the present value of $15,000, to be received in 10 years, if the interest rate is 12%?
8. You deposited $1,000 in an account that pays 8%, interest, planning to use it as a deposit on a condo. Seven years later you close out your account. How much money will you receive?
9. What is the future value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
10. Bryan Tanaka will receive $12,000 a year for the next 15 years as a result of his patent. If a 9 percent rate is applied, should he be willing to sell out his future rights now for $100,000? Show your work.
11. Your grandfather placed $2,000 in a trust fund for you. In 10 years the fund will be worth $5,000. What is the rate of return on the trust fund?
12. Granny puts $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?
13. Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you 5 years from now, if today's price is $38,000?
14. You have $500 in an account which pays 5% compound interest. How much additional dollars of interest would you earn over 4 years if you moved the money to an account earning 6%?
15. An account was opened with an investment of $1,000 10 years ago. The ending balance in the account is $1,500. If interest was compounded annually, what rate was earned on the account?
16. You need to borrow $18,000 to buy a truck. The current loan rate is 12% compounded monthly and you want to pay the loan off in equal monthly payments over 5 years. What is the size of your monthly payment?
17. The monthly mortgage payment on your house is $3,000. It is a 30 year mortgage at 6% compounded monthly. How much did you borrow?
18. You and your spouse have found your dream house in Kailua. The selling price is $700,000; you will obtain a 30-year fixed-rate mortgage at 5% APR. Assume that monthly payments begin in one month. What will each payment be?
19. Kimberly Ford invested $10,000 10 years ago at 16 percent, compounded quarterly. How much has she accumulated?
20. Sara Shouppe has invested $100,000 in an account at her local bank. The bank will pay her a constant amount each year for 6 years, starting one year from today, and the account's balance will be 0 at the end of the sixth year. If the bank has promised Ms. Shouppe a 10% return, how much will they have to pay her each year?