10. Kristine has $5,000 in an account today that pays 3% interest rate. Two years from now she withdraws $1,000 from that account to buy a laptop. How much will she have in this account in 6 years if she does not make any other deposits or withdrawals? Assume annual compounding. a. $4,844.75 b. $7,095.77 c. $4,776.21 d. $7,164.31 e. $4,970.26 11. Your grandaunt wants to buy an (ordinary) annuity that will pay her cost of living of $70,000 per year for 20 years. If the quoted interest rate today is 5% and the annuity compounds monthly, how much does this annuity cost? a. $872,354.72 b. $865,404.52 c. $883,897.66 d. $863,824.15 12. After graduation, you get a great job. You budget $1,000 per month towards housing. You'd like to buy a house. Assume that the interest rate = 4% for a 30-year mortgage. a. How much can you borrow? i. $209,461.24 ii. $207,504.40 iii. $694,049.40 iv. $24,999.98 b. Eight years into the mortgage, your company decides to relocate you to Hawaii. How much must you pay the bank to pay off your mortgage? (What is the balance left on the loan?) i. $207,018.52 ii. $175,382.89 iii. $113,461.24 iv. $153,604.91 c. Interest paid on mortgages are tax deductible. What is the interest you paid in year 8? i. $12,000.00 ii. $7,121.66 iii. $4,878.34 iv. $7,210.45 13. Your grandfather just retired and has $825,000 that he'd like to turn into an annuity. He is considering three different annuity options. He's planning to have the annuity last him 15 years. Which option should he pick and why? a. Quarterly ordinary annuity of $24,300. b. Monthly ordinary annuity of $8,050. c. Monthly annuity due of $8,000.
10. Kristine has $5,000 in an account today that pays 3% interest rate. Two years from now she withdraws $1,000 from that account to buy a laptop. How much will she have in this account in 6 years if she does not make any other deposits or withdrawals? Assume annual compounding. a. $4,844.75 b. $7,095.77 c. $4,776.21 d. $7,164.31 e. $4,970.26 11. Your grandaunt wants to buy an (ordinary) annuity that will pay her cost of living of $70,000 per year for 20 years. If the quoted interest rate today is 5% and the annuity compounds monthly, how much does this annuity cost? a. $872,354.72 b. $865,404.52 c. $883,897.66 d. $863,824.15 12. After graduation, you get a great job. You budget $1,000 per month towards housing. You'd like to buy a house. Assume that the interest rate = 4% for a 30-year mortgage. a. How much can you borrow? i. $209,461.24 ii. $207,504.40 iii. $694,049.40 iv. $24,999.98 b. Eight years into the mortgage, your company decides to relocate you to Hawaii. How much must you pay the bank to pay off your mortgage? (What is the balance left on the loan?) i. $207,018.52 ii. $175,382.89 iii. $113,461.24 iv. $153,604.91 c. Interest paid on mortgages are tax deductible. What is the interest you paid in year 8? i. $12,000.00 ii. $7,121.66 iii. $4,878.34 iv. $7,210.45 13. Your grandfather just retired and has $825,000 that he'd like to turn into an annuity. He is considering three different annuity options. He's planning to have the annuity last him 15 years. Which option should he pick and why? a. Quarterly ordinary annuity of $24,300. b. Monthly ordinary annuity of $8,050. c. Monthly annuity due of $8,000.
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 2STP
Related questions
Question
![10. Kristine has $5,000 in an account today that pays 3% interest rate. Two years from now she
withdraws $1,000 from that account to buy a laptop. How much will she have in this account in 6
years if she does not make any other deposits or withdrawals? Assume annual compounding.
a. $4,844.75
b. $7,095.77
c. $4,776.21
d. $7,164.31
e. $4,970.26
11. Your grandaunt wants to buy an (ordinary) annuity that will pay her cost of living of $70,000 per
year for 20 years. If the quoted interest rate today is 5% and the annuity compounds monthly,
how much does this annuity cost?
a. $872,354.72
b. $865,404.52
c. $883,897.66
d. $863,824.15
12. After graduation, you get a great job. You budget $1,000 per month towards housing. You'd like
to buy a house. Assume that the interest rate = 4% for a 30-year mortgage.
a. How much can you borrow?
i. $209,461.24
ii. $207,504.40
iii. $694,049.40
iv. $24,999.98
b. Eight years into the mortgage, your company decides to relocate you to Hawaii. How
much must you pay the bank to pay off your mortgage? (What is the balance left on the
loan?)
i. $207,018.52
ii. $175,382.89
iii. $113,461.24
iv. $153,604.91
c. Interest paid on mortgages are tax deductible. What is the interest you paid in year 8?
i. $12,000.00
ii. $7,121.66
iii. $4,878.34
iv. $7,210.45
13. Your grandfather just retired and has $825,000 that he'd like to turn into an annuity. He is
considering three different annuity options. He's planning to have the annuity last him 15 years.
Which option should he pick and why?
a. Quarterly ordinary annuity of $24,300.
b. Monthly ordinary annuity of $8,050.
c. Monthly annuity due of $8,000.
14. For each
a.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F52cef1cc-2bf3-4562-9378-7147e4fa1721%2Fc9d4cc3f-2a75-4c42-8a28-60ff07536a20%2Fxhfpa4t_processed.jpeg&w=3840&q=75)
Transcribed Image Text:10. Kristine has $5,000 in an account today that pays 3% interest rate. Two years from now she
withdraws $1,000 from that account to buy a laptop. How much will she have in this account in 6
years if she does not make any other deposits or withdrawals? Assume annual compounding.
a. $4,844.75
b. $7,095.77
c. $4,776.21
d. $7,164.31
e. $4,970.26
11. Your grandaunt wants to buy an (ordinary) annuity that will pay her cost of living of $70,000 per
year for 20 years. If the quoted interest rate today is 5% and the annuity compounds monthly,
how much does this annuity cost?
a. $872,354.72
b. $865,404.52
c. $883,897.66
d. $863,824.15
12. After graduation, you get a great job. You budget $1,000 per month towards housing. You'd like
to buy a house. Assume that the interest rate = 4% for a 30-year mortgage.
a. How much can you borrow?
i. $209,461.24
ii. $207,504.40
iii. $694,049.40
iv. $24,999.98
b. Eight years into the mortgage, your company decides to relocate you to Hawaii. How
much must you pay the bank to pay off your mortgage? (What is the balance left on the
loan?)
i. $207,018.52
ii. $175,382.89
iii. $113,461.24
iv. $153,604.91
c. Interest paid on mortgages are tax deductible. What is the interest you paid in year 8?
i. $12,000.00
ii. $7,121.66
iii. $4,878.34
iv. $7,210.45
13. Your grandfather just retired and has $825,000 that he'd like to turn into an annuity. He is
considering three different annuity options. He's planning to have the annuity last him 15 years.
Which option should he pick and why?
a. Quarterly ordinary annuity of $24,300.
b. Monthly ordinary annuity of $8,050.
c. Monthly annuity due of $8,000.
14. For each
a.
![14. For each of these scenarios, indicate which direction the variable goes:
a. If interest rate goes up and you have a set monthly budget for mortgage payments, you
can afford a bigger/smaller house
b.
up/down.
You found your dream home. If interest rate goes up, your monthly payment goes
c.
If interest rate goes up, the money you have in your savings account will be worth
more/less in the future.
d.
If interest rate goes up, you'd have to save more/less per month in order to buy a car
worth $20,000 in 3 years.
If interest rate goes up, you'll be able to withdraw more/less money per month for a fixed
number of months.
You gave $100,000 to the university for scholarships. If interest rate goes up, the
university would be able to offer more/less scholarship.
g. You have a fixed monthly dollar amount that you'd like to use in your retirement 45
years from now. If interest rate goes up, you will have to save more/less per month
today.
f.
h. Joe has saved $1 million and decides to retire today. He is be more certain that he has
enough to spend in his retirement if interest rate goes up/down.
You win $5 million in lottery today, and the lottery commission is offering you $250K
every year for 20 years or a $3 million lump sum today. You are more/less likely to take
the lump sum if market interest rates go up.
If the cost of an annuity just went up, that means the interest rate must have gone
up/down.
1.
15. Mark True or False for the following:
T/F
T/F
T/F
T/F
a. If a borrower pays twice as much as the required payments every period, she can pay
off the load in half the time.
b. If the interest rate drops by 50%, the monthly payments of a mortgage would drop by
50%.
T/F
c. Compared to the nominal rate, the EAR is a better measure of true cost of borrowing.
d. The cost of an annuity due is always higher than the cost of an ordinary annuity
assuming that the cash flow amount, the number of periods, and the interest rate is the
same.
e. The dollar amount of interest paid per month on a mortgage is the same because the
interest rate is fixed.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F52cef1cc-2bf3-4562-9378-7147e4fa1721%2Fc9d4cc3f-2a75-4c42-8a28-60ff07536a20%2Fd08q36e_processed.jpeg&w=3840&q=75)
Transcribed Image Text:14. For each of these scenarios, indicate which direction the variable goes:
a. If interest rate goes up and you have a set monthly budget for mortgage payments, you
can afford a bigger/smaller house
b.
up/down.
You found your dream home. If interest rate goes up, your monthly payment goes
c.
If interest rate goes up, the money you have in your savings account will be worth
more/less in the future.
d.
If interest rate goes up, you'd have to save more/less per month in order to buy a car
worth $20,000 in 3 years.
If interest rate goes up, you'll be able to withdraw more/less money per month for a fixed
number of months.
You gave $100,000 to the university for scholarships. If interest rate goes up, the
university would be able to offer more/less scholarship.
g. You have a fixed monthly dollar amount that you'd like to use in your retirement 45
years from now. If interest rate goes up, you will have to save more/less per month
today.
f.
h. Joe has saved $1 million and decides to retire today. He is be more certain that he has
enough to spend in his retirement if interest rate goes up/down.
You win $5 million in lottery today, and the lottery commission is offering you $250K
every year for 20 years or a $3 million lump sum today. You are more/less likely to take
the lump sum if market interest rates go up.
If the cost of an annuity just went up, that means the interest rate must have gone
up/down.
1.
15. Mark True or False for the following:
T/F
T/F
T/F
T/F
a. If a borrower pays twice as much as the required payments every period, she can pay
off the load in half the time.
b. If the interest rate drops by 50%, the monthly payments of a mortgage would drop by
50%.
T/F
c. Compared to the nominal rate, the EAR is a better measure of true cost of borrowing.
d. The cost of an annuity due is always higher than the cost of an ordinary annuity
assuming that the cash flow amount, the number of periods, and the interest rate is the
same.
e. The dollar amount of interest paid per month on a mortgage is the same because the
interest rate is fixed.
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