Problem 5-14 Future value of an annuity Find the future values of these ordinary annuities . Compounding occurs once a year. Round your answers to the nearest cent. a. $1,000 per year for 12 years at 16%. b. $500 per year for 6 years at 8%. c. $500 per year for 16 years at 0%. Rework previous parts assuming that they are annuities due. Round your answers to the nearest cent. d. $1,000 per year for 12 years at 16%. e. $500 per year for 6 years at 8%. f. $500 per year for 16 years at 0%. Problem 5-19 Future value of an annuity Your client is 21 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $6,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average return of 12% in the future. a. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. b. How much will she have at 70? Round your answer to the nearest cent. c. She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Round your answers to the nearest cent. Annual withdrawals if she retires at 65 Annual withdrawals if she retires at 70 Problem 5-22 Loan amortization Jan sold her house on December 31 and took a $40,000 mortgage as part of the payment. The 10-year mortgage has a 12% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year. a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent. How much interest was included in the first payment? Round your answer to the nearest cent. How much repayment of principal was included? Round your answer to the nearest cent. How do these values change for the second payment? b. How much interest must Jan report on Schedule B for the first year? Round your answer to the nearest cent. c. Will her interest income be the same next year? Problem 5-1 Future value If you deposit $10,000 in a bank account that pays 12% interest annually, how much would be in your account after 5 years? Round your answer to the nearest cent. Problem 5-8 Loan amortization and EAR You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 10% with interest paid monthly. a. What will be the monthly loan payment? Round your answer to the nearest cent. b. What will be the loan’s EAR? Round your answer to two decimal places. Problem 5-26 PV and loan eligibility You have saved $5,000 for a down payment on a new car. The largest monthly payment you can afford is $450. The loan will have a 11% APR based on end-of-month payments. a. What is the most expensive car you could afford if you finance it for 48 months? Round your answer to the nearest cent. b. What is the most expensive car you could afford if you finance it for 60 months? Round your answer to the nearest cent. Problem 5-2 Present value What is the present value of a security that will pay $47,000 in 20 years if securities of equal risk pay 8% annually? Round your answer to the nearest cent. Problem 6-9 Expected Interest Rate The real risk-free rate is 3.3%. Inflation is expected to be 2.7% this year, 4% next year, and then 2.25% thereafter. The maturity risk premium is estimated to be 0.05(t – 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places. Problem 5-1 Future value If you deposit $10,000 in a bank account that pays 12% interest annually, how much would be in your account after 5 years? Round your answer to the nearest cent. Problem 5-8 Loan amortization a…
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