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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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We have seen before that money deposited into an account with continuous interest follows the A = Pet formula. However, this required strict conditions that the money cannot be withdrawn or added to throughout the term of the investment. A more complicated model that allows for deposits/withdraws is: * (ort -1) K A (t) = Pert + where K is the constant amount deposited (K > 0) or withdrawn (K < 0) each year. Problem: A $290,000 home mortgage with a rate of 2.3 % compounded continuously is borrowed for a period of 30 years. (A) Find the amount, K, that is needed be paid off each year. (note: your K value should be negative because it is a "withdraw" from the principal, but your answer should be reported as a positive number) To pay off the loan in 30years, $ Number would need to be paid off each year. (round to the nearest cent) (B) Using the value found in part (A), how much money will be spent over the period of the loan repaying the initial balance of $290,000? $ Number (round to the nearest dollar) Submit Assignment Quit & Save Back Question Menu a Next
Transcribed Image Text:We have seen before that money deposited into an account with continuous interest follows the A = Pet formula. However, this required strict conditions that the money cannot be withdrawn or added to throughout the term of the investment. A more complicated model that allows for deposits/withdraws is: * (ort -1) K A (t) = Pert + where K is the constant amount deposited (K > 0) or withdrawn (K < 0) each year. Problem: A $290,000 home mortgage with a rate of 2.3 % compounded continuously is borrowed for a period of 30 years. (A) Find the amount, K, that is needed be paid off each year. (note: your K value should be negative because it is a "withdraw" from the principal, but your answer should be reported as a positive number) To pay off the loan in 30years, $ Number would need to be paid off each year. (round to the nearest cent) (B) Using the value found in part (A), how much money will be spent over the period of the loan repaying the initial balance of $290,000? $ Number (round to the nearest dollar) Submit Assignment Quit & Save Back Question Menu a Next
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