Question 1

(5 points) Qin deposits his first paycheck in the bank. The annual interest rate is 12%, but interest is compounded quarterly. The EAR is: 12.00

12.55

12.68

12.44

Question 2

(5 points) Gloria is 35 and trying to plan for retirement. She has put a budget together and plans to save $4,800 per year, starting at the end of this year, in a retirement fund until she is 65. Assume that she can make 7% on her account. How much will she have for retirement at age 65? 499245

144000

453412

345514

Question 3

(5 points) Dominique has just turned 65 and she has deposited her annual payment of $20,000 into her retirement account. She made her first such saving deposit into this fund on her 35th birthday. Dominique has also retired and wants to figure out how much money she has in her retirement account for her retired life. You are Dominique’s friend who knows finance. How much is Dominique’s savings worth today given that the fund has earned an annual return of 5.5%? (Enter just the number without the $ sign or a comma; round off decimals.) Answer for Question 3

Question 4

(5 points) Gerard has estimated that he is going to need enough in his retirement fund to withdraw $75,000 per year beginning on his 66th birthday and for 19 additional years thereafter. How much will Gerard need in his retirement account at age 65 if his fund is expected to earn an annual return of 9.5%? 995733

660929

1500000

644324

Question 5

(10 points) Rachna is considering a life insurance plan that will require her to pay a premium of $200 every year for the next 40 years. She wants to make sure that she is able to make this payment and wants to put away a lump sum today in her bank to cover all future payments. How much would she need to deposit in her bank if the annual interest rate on her deposit account is 4%? (Enter just the number without the $ sign or a comma; round off decimals.) Answer for Question 5

Question 6

(10 points) Roxanne is in the market for a new house, and she has found a house she likes that is selling for $250,000. The down payment on the house is 20% (the amount that the bank should require you to pay in cash) and Roxanne plans to finance the remainder with a fixed rate mortgage. The annual rate is 6% and the mortgage is for 15 years, though payments are monthly. What is the interest component of Roxanne’s first monthly payment? 1000

900

800

1100

Question 7

(15 points) Baako has invested $75,000 in a trust fund at 9% for his child’s college education. His child will draw $30,000 per year for four years, starting at the end of year 7. What will be the amount that will be left over in the education fund at the end of year 10 (just after the child has withdrawn the fourth time)?(Enter just the number without the $ sign or a comma; round off decimals.) Answer for Question 7

Question 8

(15 points) Jingfei bought a house 10 years ago for $200,000. Her down payment on the house was the minimum required 10% at that time she financed the remainder with a 15-year fixed rate mortgage. The annual interest rate was 10% and she was required to make monthly payments, and she has just made her 120th payment.

A new bank has offered to refinance the remaining balanceĀ on Jingfei’s loan and she will have to pay $1,900 per month for the next 5 years, but the total fees she will have to pay today to get the new loan is $1,000. Should she take the new offer? How much will she gain or lose in today’s dollars if she does? Annual interest rates are still 10%. (yes, gain 324)

(yes, gain 712)

(no, loss 614)

(no, loss 712)

(yes, gain 614)

(No, loss 324)

Question 9

(15 points) You have been living in the house you bought 10 years ago for $300,000. At that time, you took out a loan for 80% of the house at a fixed rate 15-year loan at an annual stated rate of 9%. You have just paid off the 120th monthly payment. Interest rates have meanwhile dropped steadily to 6% per year, and you think it is finally time to refinance the remaining balance. But there is a catch. The fee to refinance your loan is $4,000. Should you refinance the remaining balance? How much would you save/lose if you decided to refinance? (yes, gain 4053)

(yes, gain 3300)

(no, lose 2331)

(yes, gain 4647)

(no, lose 2300)

(no, lose 1323)

Question 10

(15 points) You are interested in a new Ford Taurus. After visiting your Ford dealer, doing your research on the best leases available, you have three options. (i) Purchase the car for cash and receive a $1,500 cash rebate from Dealer A. The price of the car is $15,000. (ii) Lease the car from Dealer B. Under this option, you pay the dealer $500 now and $200 a month for each of the next 36 months (the first $200 payment occurs 1 month from today). After 36 months you may buy the car for $8,000.

(iii) Purchase the car from Dealer C who will lend you the entire purchase price of the car for a zero interestĀ 36-month loan with monthly payments. The car price is $15,000. Suppose the market interest rate is 6%. What is the net cost today of the cheapest option? (Enter just the number without the $ sign or a comma; round off decimals.Since this asks for a cost, you just enter the number without a negative sign.)