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Introduction to Finance

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• Courses • About • Dhanraj Samuel

Introduction to Finance

Gautam Kaul Professor of Finance

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00 Correct. %. if you'd like.).00 Question 2 . You can attempt again. You got a score of 60. Your Answer Score Explanation False ✔ 5. etc. Question 1 (5 points) Carlos goes to the bank to take out a personal loan. The effective annual interest rate (EAR) of the loan is less than 12%.00 out of 100. Note that you only need to enter answers in terms of numbers and without any symbols (including $. Total QuestionExplanation Basics of compounding. You understand compounding. The stated annual interest rate is 12%.00. The points for each question are listed in parentheses at the start of the question. Read the syllabus for examples. but interest is compounded monthly and he will make monthly payments.00 / 5. Enter all dollars without decimals and all interest rates with up to two decimals. 5.• • Course Wiki Join a Meetup Feedback — Assignment 2 You submitted this Assignment on Wed 6 Feb 2013 7:49 AM PST. and the total points for the entire assignment adds up to 100. Please read all questions and instructions carefully. commas.

Why? Question 3 (5 points) Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account for him since he was 5 years old.(5 points) Gloria is 35 and trying to plan for retirement. The interest rate on the account has been 3.00 Correct. How much is Mohammad’s account worth today? (Enter just the number without the $ sign or a comma. She has put a budget together and plans to save $4.800 per year.000. How much will she have for retirement at age 65? Your Answer Score Explanation 453412 ✔ 5.) Answer for Question 3 Youentered: Your Answer Score Exp . starting at the end of this year. You know how to calculate the FV of an annui Total QuestionExplanation 5. in a retirement fund until she is 65.5% annually. She should have a minimum of $144. Assume that she can make 7% on her account.00 FV of an annuity calculation.00 / 5.000 every year in the account starting on his 5th birthday and have just made one. round off decimals. His mother has asked him to guess what his account is worth given that they have invested $1.

500.00 Total QuestionExplanation 0. The amount should be a minimum of $17.00 FV value of an annuity calculation. How much will Gerard need in his retirement account at age 65 if his fund is expected to earn an annual return of 9. Why? 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.00 / 5.000. 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.00 / 5. The amount has to be a maximum of $1.5%? Your Answer Score Explanation 660929 ✔ 5. Why? Question 4 (5 points) Gerard has estimated that he is going to need enough in his retirement fund to withdraw $75.20971 ✘ 0. .00 Correct. You know how to calculate the PV of an annui Total QuestionExplanation 5.000 per year beginning on his 66th birthday and for 19 additional years thereafter. Draw a time line.000.00 Mecahnics of calculating the PV of an annuity.

000. round off decimals. You know how to calculate the PV of an ann Total QuestionExplanation 10.00 Correct. Why? Question 6 (10 points) Melanie and Stephen Jackson are purchasing their first house.25% APR with monthly payments.000. Cannot be more than $8.) Answer for Question 5 Youentered: Your Answer Score Explanation 3959 ✔ 10. The house costs $360. an amount that banks should require you to pay out-of-pocket).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. but will therefore finance the rest. They are considering a fixed rate 30-year mortgage at a 5. How much will the Jacksons' first monthly payment be? Your Answer Score Explanation 1590 ✔ 10.00 Correct.00 / 10.00 PV of an annuity. You know how to do a PMT calculatio . They have put a 20 percent down payment (that is.

You know how to understand and analyze real world proble Total QuestionExplanation 15. who has just celebrated her 29th birthday. and to continue paying for 19 more years.000 for each of these twenty years.00 This payment is a simple PMT calculation. how big should Abebi's equal payments be?(Enter just the number without the $ sign or a comma. Why? Question 7 (15 points) Abebi. will retire on her 55th birthday. and she has just set up a retirement plan to pay her income starting on her retirement day.00 A multi-layer problem.00 / 10. Abebi has committed to set aside equal payments at the end of each year. Remember a spreadsheet is a time line.00 / 15.Draw a timeline. for the next 25 years starting on her 30th birthday. the amount has to be more than $800 per month.Total QuestionExplanation 10. .) Answer for Question 7 Youentered: Your Answer Score Explanation 12933 ✔ 15. In creating her retirement account.00 Correct. If the annual interest rate is 9%. round off decimals. Abebi's goal is to receive $120. it is key. now that you know the mechanics of most calculations.

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%.Question 8 (15 points) Jingfei bought a house 10 years ago for $200.000. and she has just made her 120th payment.000.00 / 15. but the wrong sign. The annual interest rate was 10% and she was required to make monthly payments. A new bank has offered to refinance the remaining balance 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. B Total QuestionExplanation 10. You have just paid off the 120th monthly payment.00 You have the right calculation.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%. and you think it is finally time to refinance the remaining balance. loss 614) ✔ 10. 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. Your Answer Score Explanation (no. Should you refinance the remaining balance? How much would you save/lose if you decided to refinance? . richer and more practical. Interest rates have meanwhile dropped steadily to 6% per year.000. But there is a catch.00 This is a multi-layer problem. Always draw time lines. The fee to refinance your loan is $4. Question 9 (15 points) You have been living in the house you bought 10 years ago for $300.

00 This is an even more realistic version of the mortgage problem. (iii) Purchase the car from Dealer C who will lend you the entire purchase price of the car for a zero interest 36-month loan with monthly payments. The car price is $15. 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). gain 4053) ✘ 0.Your Answer Score Explanation (yes. After visiting your Ford dealer. Under this option. Think about the interest rat Total QuestionExplanation 0. (ii) Lease the car from Dealer B. round off decimals. you have three options.00 / 15. (i) Purchase the car for cash and receive a $1. Suppose the market interest rate is 6%. doing your research on the best leases available.000. Think carefully about time lines and relevant interest rates to make different calculations. Question 10 (15 points) You are interested in a new Ford Taurus.00 Correct decision. calculation incorrect.000.) Answer for Question 10 Youentered: Your Answer Score Ex . you just enter the number without a negative sign.000. The price of the car is $15.Since this asks for a cost.500 cash rebate from Dealer A. What is the net cost today of the cheapest option? (Enter just the number without the $ sign or a comma. After 36 months you may buy the car for $8.

00 / 15.a ✘ 0.00 Total QuestionExplanation 0. draw time lines and think through carefully.00 This is a problem that you will face all the time. .

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