Lab #6 Retirement & Mortgages Global Distinction.docx

MAT 143 Week 6 Lab: Managing Money – Retirement and Mortgages Unit: Managing Money Submitted by: Derrick Casinillo – Mathematics Faculty, Forsyth Technical Community College Assessment: Part Recommended Points I: Retirement Income 15 points II: Mortgage: How much you can afford 10 points III: Cultural Acclimation: Learning About Belize 15 points IV: Mortgage: Buying a house 60 points Total Score 100 points Resources: ∙ Crauder, B.,Evans, B., Johnson, J.,& Noell, A. (2015). Quantitative Literacy (2 nd Ed.) New York, NY. ∙ Gaze, E. (2014). Thinking Quantitatively: Communicating with Numbers (1 st Ed.) ∙ Rachowiecki, R., & Beech, C. (2004). Peru (5th ed.). Oakland, CA: Lonely Planet. ∙ https://www.globalpropertyguide.com/Caribbean/Belize ∙ https://www.belizepropertycenter.com ∙ https://www.belizepropertycenter.com/search3.php ∙ https://www.arebb.com/belize-real-estate INSTRUCTIONS: Answer each of the following questions on the Answer Sheet Word document. Correct responses must include units such as $ signs. Answer in complete sentences. All answers in Dollars and Cents Part I: Retirement Income – Perpetuity In this lab, you will set-up savings for your retirement plan (nest egg) after working. You will live on this money when you stop earning a paycheck. Retiring with enough money to live on comfortably is within all our reach. It’s very important to start saving for retirement from the day we begin to work. Just sit back and let the power of compounding take over. Perpetuity : If a retirement fund is set up as perpetuity, one withdraws each month only the interest accrued over that month; the principal remains the same. For example, suppose you have accumulated $500,000 in an account with a monthly interest rate of 0.5%. Each month, you can withdraw $500,000 X 0.005 = $2500 in interest, and the nest egg will always remain at $500,000. That is, the $500,000 perpetuity has a monthly yield of $2500. In general, the monthly yield for perpetuity is given by the formula: Monthly perpetuity yield = Nest egg × Monthly interest rate .

Investment : You began saving for retirement at age 25 by contributing $100 per month at an APR of 3% compounded monthly. You plan to retire at the age 65 and live on your retirement nest egg. 1. How much money is in your account on retirement at age 65? 2. What is the total amount of your deposits over 40 years? 3. Compare that amount of money in your account to the total deposits made over the time period. Explain your observation as a percentage of your contribution to the total balance. 4. After working for 40 years, you decide to retire. Suppose you set up your account as perpetuity on retirement paying an APR of .75% compounded monthly. If the value of your nest egg (that is, the present value) is the amount found in question #1, what will be your monthly income and your yearly income? Part II: Mortgages – How much can you afford? 5. Lending agencies usually require that no more than 30% of the borrower’s monthly income be spent on housing. Given the monthly income from question 4, the monthly mortgage payment amount that could be spent on housing would be?. 6. How much can you borrow? Assume that the term is 20 years and the APR is 6.25%. Part III: Cultural Acclimation – Learning About Belize In this lab, you plan to buy your 2 nd home, a retirement house, in Belize district, Belize. You will describe/explore the property market of Belize and research the process of buying a house in that country. However, before buying a home, you should get to know Belize a little better. 7. Go to the websites listed below and read about the history and culture of Belize. Then, answer the following questions. ● https://www.everyculture.com/A-Bo/Belize.html ● https://www.belizehub.com/belize-culture-and-history/ (a) What country is Belize located in? (b) What languages are spoken in Belize? If there is more than one language, which is the primary language spoken?

c) How much interest will be paid on the loan over the 10 years? 13. Suppose you want a 20-year instead of 10-year fixed-rate mortgage loan of $500,000 with the same fixed annual interest rate of 5.50% APR and no down payment a) Determine your monthly mortgage payment for the 20-year, fixed-rate mortgage loa. b) Determine the total amount paid over the full term of the load. c) How much interest will be paid on the loan over the 20 years. d) How much less is the amount of interest paid over the life of the 10-year loan than over the life of a 20- year loan? 14. Of the first month's mortgage payment on the 20-year loan look at the Mortgage Refinance Amortization Schedule a) How much goes towards the interest and how much is applied to the principal? b) What is the new balance on the 20-year loan after the first mortgage payment.