2. A loan of $7250 was repaid at the end of 8 months. What size repayment check was written if a 9% annual rate of interest was charged?

Transcription

1 Math 1630 Practice Test Name Chapter 5 Date For each problem, indicate which formula you are using, (B) substitute the given values into the appropriate places, and (C) solve the formula for the unknown quantity. For those problems which involve compound interest, fill in the numbers for each lines of the TVM solver screen, including all decimal places and negative signs. Use zeros for those quantities which do not apply to a particular problem. For simple interest problems and effective rate problems, leave the TVM solver screen blank. Show all of your work, and include appropriate units in your answers. 1. A relative wills you an annuity that will pay you $4000 per quarter for the next 10 years. At the end of that time, the annuity balance will be zero. If the money in the account earns 6% compounded quarterly, how much is in the account now, prior to the first payment? _ 2. A loan of $7250 was repaid at the end of 8 months. What size repayment check was written if a 9% annual rate of interest was charged? 3. Your plan to deposit $150 per month into an account that pays 4.5% compounded monthly. How long will it be before you have $4,000 for a HDTV monitor? Round up to the next higher month if the answer is not exact.

2 Math 1630/Chapter 5/PracticeTest Page 2 4. What is the annual (nominal) rate compounded daily for a bond that has an effective rate of 7.4%? Use a 365-day year and give the answer as a percent rounded to 2 decimal places. 5. Rental costs for office space have been going up at an average 7% annual compounding rate for the past 5 years. If office space rent is now $20 per square foot per month, what were the monthly rates 5 years ago?

3 Math 1630/Chapter 5/PracticeTest Page 3 6. A company estimates that it will need $100,000 in 8 years to replace a computer. If it establishes a sinking fund by depositing two payments each year into an account paying 10% compounded semiannually, how much should each payment be? 7. If an investor wants earn an annual interest rate of 12.63% on a 13-week T-bill a maturity value of $10,000, how much should the investor pay for the T-bill? 8. At the begging of each month, an employee has $150 deducted from her paycheck for deposit into a savings account. After 20 years, there is $65,250 in the account. What monthly compounding rate is applied to the money in her annuity due account? Give the answer as a percent rounded to 2 decimal places.

4 Math 1630/Chapter 5/PracticeTest Page 4 9. Fred received $ in proceeds when he qualified for a discounted loan with a face value of $2400. If the annual interest rate is 8.25%, how many days does Fred have to pay off the loan without incurring additional interest charges? Use a 365-day year, and round up to the nearest day if the answer is not exact. 10. (i) Which is the better investment and why: a note which pays 8.7% compounded semiannually or a note which pays 8.6% compounded quarterly? (ii)how does your answer charge if you are considering two loans at the given rates? (i) (ii) 11. Mitch and Marge are considering the purchase of a new house costing $295,000. After they make a 20% down payment, the balance will be amortized over 15 years in equal monthly payments at an interest rate of 5.8% compounded monthly. (i) Calculate the down payment. (ii) Find the amount that will be financed. (iii) Determine the monthly payment. (iv) Figure out the total interest that they will pay over the next 15 years. (v) Determine the unpaid balance on the mortgage after 10 years.

5 Math 1630/Chapter 5/PracticeTest Page 5 (i) (i) (ii) (ii) (iii) (iii) (iii) (iii) (iv) (v) (iv) (v) 12. Construct the amortization schedule for a $5000 debt that is to be paid in 10 monthly payments at an interest rate of 18% compounded monthly applied to the unpaid balance. Show how to you calculate the amount of the semiannual payments. The final payment should not differ by more than a few cents from the other 9 payments. Payment Number Amount of Payment Interest for Period Reduction of Unpaid Balance Unpaid Balance (Principal) $ Totals Use amortization formula or TVM solver to determine monthly payment. 13. Be prepared to work a two-stage problem as illustrated by problems (4) and (5) from each of the Practice Problems Sets C and D.