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A.2.

1 Problems
1. The Smith family is looking to buy a new home. They find one they really like for
$200,000. They can afford a monthly payment of $1,250. Their mortgage broker
finds a rate of 7% convertible monthly for 30 year mortgages. How much of a down
payment do they need to make?
2. Grandma decides to set-up a college fund for her newborn grandson. She will deposit
$1,335.10 into a savings account every year on his birthday, starting on his first
birthday and ending on his 18th birthday. She hopes to accumulate $50,000 to give to
him on this 18th birthday. What is the minimum annual compound interest rate the
savings account must earn in order to reach her goal?
3. The present value of an n-year immediate annuity is x. The present value of a 2n-year
immediate annuity is y. Express i as a function of x and y.
Solutions
1. $12,115.54
2. 8%
3. i = (2x – y) / x2

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Joint Exam 2/FM (A.2.1 Problems)