1. You have accumulated $4,400 in credit card debt. Your credit card rate is 8.5% APR and you are charged interest every month on the unpaid balance on your account. How much interest must you pay every month, assuming the balance remains

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HW 2
1. You have accumulated 4,400 in credit card
debt. Your credit card rate is 8.5 APR and you
are charged interest every month on the unpaid
balance on your account. How much interest must
you pay every month, assuming the balance remains
unchanged?31.17 2. You have accumulated 5,000
in credit card debt. Your credit card rate is
9.5 APR and you are charged interest every month
on the unpaid balance on your account. If you
pay 500 a month and incur no new debt, how long
will it take you to pay off your credit card
balance? 10.46 months 3. What is the future
value of an ordinary annuity yielding 6.00 APR
that pays semiannual payments of 500 for 1.5
years? (Do the math do not use the financial
functions on your calculator. Draw a cash flow
diagram) 1,545.45
4. You are considering financing a new car which
cost 48,999 with an amortized loan. Your bank
offers a nominal rate of 7.200 for a 6 year loan
with monthly payments. How much will each
payment be? 840.10 5. Today you deposit
2000 in a bank account that pays 3.6 APR
compounded weekly. How much money would you have
in that account 21 months from now. Do not
assume there are 4 weeks per month. There are 52
weeks per year. 2,130.01 6. You are tasked
with estimating the fair market value of a
security that promises uneven future payments.
The table below shows the quarterly payment
schedule (each cash flow occurs at the end of the
quarter). You consider 7.2 APR to be the
appropriate opportunity cost. What is the
theoretical value of this security? 1,806.41
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
300 400 500 700
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7. You are considering leasing a car for 3 years.
The lease requires monthly payments of 448.00.
Somewhere on the lease paperwork you notice a
statement to the affect that you will be charged
an APR of 4.800. (Hint this is an Annuity Due)
What is the value of the lease? 15,052.68
8. Fly By Night Trucking Company is financing a
new truck with an amortized loan of 50,000 to be
repaid in 11 semi-annual installments of
5,776.92, paid at the end of each six months.
What type of annuity is this?________________.
What is the annual cost of debt for this loan?
8.4500 9. Today you deposit 90,000 of
your company's money in an investment account
that pays 7.97 APR compounded weekly. How much
money would you have in that account 11 months
from now? Do not assume there are 4 weeks per
month. There are 52 weeks per year.
96,815.98 10. Today is 1 January and you
plan to start investing in a stock mutual fund
that pays quarterly dividends. The funds value
has grown at an average rate of 9.42 APR for the
past 3 years. Today you deposited 1,500 into
this account and will continue to deposit that
amount at the beginning of every 3 months
thereafter. What type of annuity is this?
_________________. How much money would you have
in this account after 5 1/2 years? 43,600.70
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11. You are considering financing a new car which
with an amortized loan. Your bank offers a
nominal rate of 6.4500 for a 6 year loan with
monthly payments. You cannot afford to pay more
than 400 per month. What is the price of the
most expensive car you can afford to finance?
23,829.19
12. How many years will it take for your savings
account to accumulate 1m if it pays 4 interest
per year compounded semiannually and you deposit
10k every 6-months at the end of the 6-month
period?
27.74 years
13. You are considering leasing a car that cost
46,000. The lease will be for 5 years and
requires monthly payments. Somewhere on the
lease paperwork you notice a statement to the
affect that you will be charged an APR of
6.2850. Assume the car will be worth 20,000 at
the end of the lease. How much will your
payments be? 607.67 14. Assume you want to
deposit 15,000 in a commercial bank. Which
savings account is better, one paying 6 with
yearly compounding or one paying 5.9 with
continuous compounding. Show your future value
calculations. 15,900, 15,911.63 15. If
you need an estimated 250,000 for your kids
college education in 7 years, how much money
should you set aside today on a U.S. savings bond
earning 7.5 per year with continuous
compounding? 147,888.84 16. You are being
offered a 50,000 loan at a quoted rate of 5
with daily compounding of interest. What is the
nominal rate? What is the periodic rate? What
is the effective rate? 5.1267 17. You are
getting a 19,500 loan from your bank to buy a
car. You are required to pay it within 5 years
in monthly installments of 430.00 each due at
month-end. What would the periodic, nominal and
effective rates be on this loan? rnominal
11.6168 rperiodic 0.9681 reffective 12.2557
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18. You are getting a 3,000 loan from a
dealership to buy a used car. The dealer has
given you the choice between two different credit
alternatives. The first one is a two-year
financing deal, with payments of 142.60 per
month. The other one is a three-year financing
deal, with monthly payments of 100.83. Based on
effective rate of interest calculations, which of
the two loans in the previous question would you
chose? 1st Option 13.7829 2nd Option
13.6071 19. Your brother-in-law is
inviting you to invest some money with him. He
argues that he can beat whatever effective yield
you are getting form your mutual fund. He is
asking you to invest 10,000 today and promises
to pay you back 15,000 in five years. If your
mutual fund pays you an average annual rate of
return of 8, is your brother-in-law telling the
truth? 8.4472 Your brother-in-law is telling the
truth