Question

(3 pts) Bob would ike to have $20,000 in 4 years to use as a down payment on a future house purchase. He has no money saved up now, but plans on depositine 5375 per month at the end of every month to save for this goal. What is the periodic interest rate Bob must earn to reach his goal? What is the Annual Percentage rate? 1) Periodic Nominal APR) (3 pts) Sue has $30,000 to use as a down payment on a house and can afford to pay $1000 per month for a mortgage. If the interest rate on a î5-year mortgage is 4.2% (this is an APR) compounded monthly. What is the highest price house she can afford using a 15-year mortgage? 2) (2 pts) Larry would like to retire in 20 years. He currently has $300,000 in his retirement account and is planning on depositing an additional $800 each month in his retirement account If Larry can earn an average APR of 7.2% per year compounded monthly, how much money will be in his retirement account in 20 years? 3) 4) (2 pts) You want to set up an endowed scholarship that will pay $6000 a year in perpetuity. If the appropriate interest rate is 4.5 % compounded annually, how much will you have to donate today to set up the endowed scholarship? s. 5) (2 pts) You want to buy a $25,000 car and have saved up $3,000 to use as a down payment. If you finance the rest at 4.5% (APR) compounded monthly for 5 years, what will your monthly payment be?

Answer 1

Answer to Question 1.

Desired sum = $20,000
Monthly deposit = $375
Number of deposits = 48

Let monthly interest rate be i%

$20,000 = $375 * FVIFA(i%, 48)

Using financial calculator:
N = 48
PV = 0
PMT = -375
FV = 20000

I = 0.441%

Periodic Interest Rate = 0.44%

Nominal Interest Rate = 12 * 0.44%
Nominal Interest Rate = 5.28%