Math 140 Introduction to Quantitative Reasoning

Instructor:
Application Assignment 5 Name: _______________________
Sections 4.1, 4.2 and 4.3
Date: _________________________

Answer the following questions below. Please be sure to clearly identify any variables used and
use complete sentences. Please show all of your work and explain your answers.

1. If a bank doubles the number of times per year that it compounds interest, does that
double the amount you earn in a year on your savings account? Explain.

2. A bank tells you that its APR and APY are the same. What does that tell you about
compounding?

3. You are negotiation a loan with a bank officer. The loan is at a moderate interest rate,
and the term of the loan is six months. The bank officer tells you your monthly payment.
Explain how you can quickly check whether or not the figure the bank officer gave you is
reasonable. Exercise 15 in Section 4.2 is relevant to this topic.

4. Discuss the advantages and disadvantages of an adjustable-rate mortgage verses a fixed-

rate mortgage.
Math 140 Introduction to Quantitative Reasoning
Instructor:

5. In this exercise, we consider the effects of starting early or starting late to save for
retirement. Assume that each account considered has an APR of 6% compounded
monthly.
a. At age 20, you realize that even a modest start on saving for retirement is
important. You begin depositing $50 each month into an account. What will be
the value of your nest egg when you retire at age 65?

b. Against expert advice, you begin your retirement program at age 40. You plan to
retire at age 65. What monthly contributions do you need to make to match the
nest egg from part a?

c. Compare your answer to part b with the monthly deposit of $50 from part a. Also
compare the total amount deposited in each case.

d. Let’s return to the situation in part a: At age 20, you begin depositing $50 each
month into an account. Now suppose that at age 40, you finally get a job where
your employer puts $400 per month into an account. You continue your $50
deposits, so from age 40 on, you have two separate accounts working for you.
What will be the total value of your next egg when you retire at age 65?