Reference no: EM133042476

Questions -

Q1. Payday loans are very short-term loans that charge very high interest rates. You can borrow $800 today and repay $850 in two weeks. What is the compound annual rate implied by this 15 percent rate charged for only two weeks?

Q2. Payday loans are very short-term loans that charge very high interest rates. You can borrow $300 today and repay $325 in two weeks. What is the compound annual rate implied by this 12.5 percent rate charged for only two weeks?

Q3. Mr. Roberts decides to purchase a car for $18,000. Mr. Roberts has an excellent credit rating, so the dealer offers to finance the car at 5% interest over a 5-year period. What is the monthly payment amount that Mr. Roberts would be expected to pay?

Q4. Steve realizes that he has charged too much on his credit card and has racked up $12,000 in debt. If Steve can pay $250 each month and the card charges 23 percent APR (compounded monthly), how long will it take him to pay off the debt?

Q5. Given the same information in question #4, how much interest will Steve pay if he chooses to continue in making monthly payments of $250?

Q6. Mrs. Jones is saving for her retirement. If she makes a payment of $1,500 at the end of each month for 20 years and earns a rate of 7% compounded 12 times per year, how much will she have in her retirement account when she is ready to retire?

Q7. Given the same information in question #6, if Mrs. Jones makes her payment at the beginning of each month how much will she have in her retirement account when she is ready to retire?

Q8. Mr. Webster is getting ready to retire. He has worked hard all of his life, and saved $500,000 in this retirement fund. Mr. Webster would like to withdraw $3,000 a month. He can expect a growth rate of 3% on his investment that has not been withdrawn. How many years can Mr. Webster expect to receive his $3,000 monthly payments until his retirement fund is 100% used?

Q9. Mr. Austin is planning for his retirement. His goal is to withdraw $4,000 per month for 25 years. He will be conservative in his retirement years and only expects his investments to grow at 2%. What is the principle that Mr. Austin will need in his retirement account in order to accomplish his goals?

Q10. Tammy purchased a vehicle for $35,000 two years ago using a 5 percent, 5-year loan. She has decided that he would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Tammy would need to receive for her car?

Q11. Give the same information in #10, when Tammy made her 24th payment what was the payment amount, interest paid and principle paid?

Q12. What is the present value of a $2,000 payment made every year forever when interest rates are 5 percent?

Q13. A loan is offered with monthly payments and 18 percent APR. What is the loan's effective annual rate (EAR)?

Q14. Robert wants to buy a car for $15,000 car. The bank will provide terms of 4 years at 8%. Robert can afford a payment of up to $400 per month. Based on these terms, can Robert afford to make the payments? Explain your answer.