Bond and Percent

2 February 2017

Value of Money and Valuing Bonds Chapter 6 55. Amortization with Equal Payments Prepare an amortization schedule for a five-year loan of $36,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? Answer: $2,108. 52 56. Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan agreement calls for a principal reduction of $7,200 every year instead of equal annual payments.

Answer: $1,944. 00 57. Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives.First, he would like to be able to retire 30 years from now with retirement income of $20,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $325,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $2,000 per month for the next 10 years.

Bond and Percent Essay Example

If he can earn an 11 percent EAR before he retires and an 8 percent EAR after he retires, how much will he have to save each month in years 11 through 30?Answer: $2,259. 65 58. Calculating Annuity Values After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $28,000. The dealer has a special leasing arrangement where you pay $1 today and $380 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an 8 percent APR. You believe you will be able to sell the car for $15,000 in three years.

Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?Answer: Lease, $20,161. 86 66. Calculating Annuity Payments This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $90,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 8 percent interest per year.

She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund. a. If she starts making these deposits on her 36th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement? b. Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum payment on her 35th birthday to cover her retirement needs.What amount does she have to deposit? c. Suppose your friend’s employer will contribute $1,500 to the account every year as part of the company’s profit-sharing plan.

In addition, your friend expects a $25,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. What amount must she deposit annually now to be able to make the desired withdrawals at retirement? Answer: a. $7,800. 21, b. $87,813. 12, c. $5,823.

77 67. Calculating the Number of Periods Your Christmas ski vacation was great, but it unfortunately ran a bit over budget.

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