Finance Problems
5.1-5.3
1. An individual invests $2,000 annually in an IRA. At the end of 6 years, the amount in the fund is $15,000. What annual nominal compounding rate has this fund earned?
2. A law firm buys a computerized word-processing system costing $10,000. If it pays 20% down and amortizes the rest with equal monthly payments over 5 years at 9% compounded monthly, how much interest will the firm pay?
3. Which is a better investment, 5.5% compounded annually or 5% compounded daily? (Use a 365-day year.)
4. A $7,000 debt is to be amortized in 18 equal monthly payments of $417.18 at 0.75% interest per month on the unpaid balance. What is the unpaid balance after the second payment?
5. Jennie made a down payment of $2500 toward the purchase of a new car. To pay the balance of the purchase price, she has secured a loan at the rate of 9% per year, compounded monthly. She is required to make payments of $225 per month for 36 months. What is the cash price of the car?
6. Laurie plans to deposit $6000 into a bank account at the beginning of the month and $250 per month into the same account at the end of each month for five years. If her interest rate is 4% per year, compounded monthly, how much will Laurie have in her account at the end of five years if she makes no withdrawals during that time?
7. Cindy secured a bank loan of $195,000 for the purchase of a house. The mortgage is to be amortized through monthly payments for a term of 15 years with an interest rate of 6.4% per year, compounded monthly on the unpaid balance. She plans to see her house in five years. How much will Cindy still owe on the house?
8. Seven years ago Shawn secured a bank loan of $250,000 to help finance a house. The term of the mortgage was 30 years and the interest rate was 9.2% per year, compounded monthly on the unpaid balance. Because the interest rate has dropped to 7.4% per year, compounded monthly, Shawn wants to refinance. If he refinances for 25 years, what will be his new monthly mortgage payments?
9. How much interest will Shawn save (problem #8) by refinancing?
10. Raoul purchased a $240,000 house. He made a down payment of $25,000 and secured a mortgage with interest charged at the rate of 7.8% per year on the unpaid balance. Interest computations are made at the end of each month. If the loan is to be amortized over 25 years, what will be Raoul’s equity at the end of 10 years?