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FIN1_EQ2

Janet plans to begin saving for her retirement. Her plan is to

contribute $1,000 to a brokerage account each year on her

birthday. Her first contribution will take place today. Her 42nd

and final contribution will take place on her 64th birthday. Her

aunt has decided to help Janet with her savings, which is why

she gave Janet $10,000 today as a birthday present to help get

her account started. Assume that the account has an expected

annual return of 10 percent. How much will Janet expect to

have in her account on her 65th birthday?

1,139,037.68

Problem 2. You have the opportunity to buy a perpetuity that

pays $1,000 annually. Your required rate of return on this

investment is 15 percent. You should be essentially indifferent

to buying or not buying the investment if it were offered at a

price of 6,666.67

Janet plans to begin saving for her retirement. Her plan is to

contribute $1,000 to a brokerage account each year on her

birthday. Her first contribution will take place today. Her 42nd

and final contribution will take place on her 64th birthday. Her

aunt has decided to help Janet with her savings, which is why

she gave Janet $10,000 today as a birthday present to help get

her account started. Assume that the account has an expected

annual return of 10 percent. How much will Janet expect to

have in her account on her 65th birthday?

1,139,037.68

Problem 2. You have the opportunity to buy a perpetuity that

pays $1,000 annually. Your required rate of return on this

investment is 15 percent. You should be essentially indifferent

to buying or not buying the investment if it were offered at a

price of 6,666.67

Years 1 through 5, $3,000 a year in Years 6 through 8, and

$4,000 in Year 9, with all cash flows to be received at the end

of the year. If you require a 14 percent rate of return, what is

the present value of these cash flows? 11,714

Years 1 through 5, $3,000 a year in Years 6 through 8, and

$4,000 in Year 9, with all cash flows to be received at the end

of the year. If you require a 14 percent rate of return, what is

the present value of these cash flows? 11,714

a loan of $10,000 to be repaid in 5 annual end-of-year

installments of $2,504.56. What annual interest rate is the

company paying? 8%

a loan of $10,000 to be repaid in 5 annual end-of-year

installments of $2,504.56. What annual interest rate is the

company paying? 8%

Problem 5. You recently received a letter from Cut-to-theChase National Bank that offers you a new credit card that has

no annual fee. It states that the annual percentage rate (APR)

is 18 percent on outstanding balances. What is the effective

annual interest rate? (Hint: Remember these companies bill

you monthly.)

19.56%

Problem 6. Jill currently has $300,000 in a brokerage account.

The account pays a 10 percent annual interest rate. Assuming

that Jill makes no additional contributions to the account, how

many years will it take for her to have $1,000,000 in the

account? 12.63 years

Problem 5. You recently received a letter from Cut-to-theChase National Bank that offers you a new credit card that has

no annual fee. It states that the annual percentage rate (APR)

is 18 percent on outstanding balances. What is the effective

annual interest rate? (Hint: Remember these companies bill

you monthly.)

19.56%

Problem 6. Jill currently has $300,000 in a brokerage account.

The account pays a 10 percent annual interest rate. Assuming

that Jill makes no additional contributions to the account, how

many years will it take for her to have $1,000,000 in the

account? 12.63 years

The loan is for five years (60 months) and is fully amortized.

The nominal rate on the loan is 12 percent, and payments are

made at the end of each month. What will be the remaining

balance on the loan after you make the 4th payment? 8611.17

The loan is for five years (60 months) and is fully amortized.

The nominal rate on the loan is 12 percent, and payments are

made at the end of each month. What will be the remaining

balance on the loan after you make the 4th payment?

the end of every month. The bank account has a nominal

interest rate of 8 percent and interest is compounded monthly.

How much will Bill have in the account at the end of 2 years

(30 months)? 6,617.77

the end of every month. The bank account has a nominal

interest rate of 8 percent and interest is compounded monthly.

How much will Bill have in the account at the end of 2 years

(30 months)? 6,617.77

every six months. The security lasts for 10 years. Another

security of equal risk also has a maturity of 10 years, and pays

10 percent compounded monthly (that is, the nominal rate is 10

percent). What should be the price of the security that you just

purchased? 6,175.82

every six months. The security lasts for 10 years. Another

security of equal risk also has a maturity of 10 years, and pays

10 percent compounded monthly (that is, the nominal rate is 10

percent). What should be the price of the security that you just

purchased? 6,175.82

today, the account pays a nominal annual interest rate of 6

percent, but compounded semiannually, and you withdraw

$100 after 6 months. What would your ending balance be 20

years after the initial $100 deposit was made? 9.50

today, the account pays a nominal annual interest rate of 6

percent, but compounded semiannually, and you withdraw

$100 after 6 months. What would your ending balance be 20

years after the initial $100 deposit was made? 9.50

pays a 4 percent nominal annual interest with daily

compounding. How much money will you have in the account

at the end of July (in 132 days)? (Assume there are 365 days

in each year.) 2029.14

pays a 4 percent nominal annual interest with daily

compounding. How much money will you have in the account

at the end of July (in 132 days)? (Assume there are 365 days

in each year.) 2029.14

Problem 12. If you buy a factory for $250,000 and the terms

are 20 percent down, the balance to be paid off over 30 years

at a 12 percent rate of interest on the unpaid balance, what will

be the amount of each 30 equal annual payments? 24,829

Problem 12. If you buy a factory for $250,000 and the terms

are 20 percent down, the balance to be paid off over 30 years

at a 12 percent rate of interest on the unpaid balance, what will

be the amount of each 30 equal annual payments? 24,829

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