Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 12MC: (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest...
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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 However, this required strict conditions that the money cannot be withdrawn or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 0) or withdrawn (K 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)
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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 However, this required strict conditions that the money cannot be withdrawn or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 0) or withdrawn (K 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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