Reference no: EM131300531
1. How much would you pay today for an investment that provides $1,000 at the end of each year for 15 years, if your required rate of return is 10 percent per year?
2. Now compute how much you would pay at an 8 percent rate of return.
3. Now compute how much you would pay at a 12 percent rate of return.
4. A child is born this year. On it's first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it will grow to $50,000 on the child's 18th birthday?
5. Calculate the monthly payment on a $300,000 loan with monthly payments, at 4% interest with 30 year amortization?
What is the mortgage loan balance of the loan above at the end of year 5?
6. "A borrower takes a $300,000 loan with fixed rate of 4% amortized with monthly payments over 30 years. There are prepaid finance charges of 1 point on the loan amount plus $1,500. Calculate the APR. [Format Answer as a percentage - X.XX]"
Response Feedback:
The annual percentage rate [APR] is the effective cost to borrow. It is calculated using the term and loan payment. The loan amount used for this calculation is the amount borrowed less the prepaid finance charges.
7. "A borrower is considering a 1-year adjustable rate mortgage of $250,000 that starts at 2.5%, 30 year amortization. The margin is 2.25%. The annual change caps are 2% per year. The current index is 1.25%. The life cap is 6% over the start rate.
If the INDEX moves up to 1.75%, what is the monthly payment for year 2? [WARNING: The loan balance is paid down a bit during the first year.]
Response Feedback:
The payment will adjusted to the new interest rate [index + margin] within the limits of the interest rate caps. The new payment is the payment on the remaining balance for the remaining loan term at the new, adjusted interest rate.
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