Question

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 17.3 percent compounded monthly. Assume you transfer the $6,300 balance from your existing credit card and make no subsequent payments.

How much interest will you owe at the end of the first year?

You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $350 per month in a bond account. The return of the stock account is expected to be 9.5 percent, and the bond account will pay 5.5 percent. When you retire, you will combine your money into an account with a 6.5 percent return.

How much can you withdraw each month from your account assuming a 25-year withdrawal period? You want to be a millionaire when you retire in 40 years.    How much do you have to save each month if you can earn an annual return of 11.9 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)      Savings per month $        How much do you have to save each month if you wait 15 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)       Savings per month $       How much do you have to save each month if you wait 25 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)       Savings per month $    Suppose an investment offers to quintuple your money in 42 months (don’t believe it). What rate of return per quarter are you being offered? You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $65,000 per year for the next two years, or you can have $54,000 per year for the next two years, along with a $10,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month.    If the interest rate is 8 percent compounded monthly, what is the PV for both the options? You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 30 years and the payments will increase by 3.9 percent per year.    If the appropriate discount rate is 7.9 percent, what is the present value of your winnings? You’re prepared to make monthly payments of $260, beginning at the end of this month, into an account that pays 6.7 percent interest compounded monthly.    How many payments will you have made when your account balance reaches $17,000? You need a 25-year, fixed-rate mortgage to buy a new home for $285,000. Your mortgage bank will lend you the money at an APR of 5.8 percent for this 300-month loan. However, you can afford monthly payments of only $1,250, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.    How large will this balloon payment have to be for you to keep your monthly payments at $1,250?

Answer 1