# Bond and Percent

Topics: Bond, Investment, Time value of money Pages: 4 (1454 words) Published: October 12, 2012
Week 3Time Value of Money and Valuing Bonds
Chapter 6
55.Amortization with Equal Payments Prepare an amortization schedule for a five-year loan of \$36,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? Answer: \$2,108.52

56.Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan agreement calls for a principal reduction of \$7,200 every year instead of equal annual payments. Answer: \$1,944.00

57.Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of \$20,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of \$325,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of \$750,000 to his nephew Frodo. He can afford to save \$2,000 per month for the next 10 years. If he can earn an 11 percent EAR before he retires and an 8 percent EAR after he retires, how much will he have to save each month in years 11 through 30? Answer: \$2,259.65

58.Calculating Annuity Values After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs \$28,000. The dealer has a special leasing arrangement where you pay \$1 today and \$380 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an 8 percent APR. You believe you will be able to sell the car for \$15,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing? Answer: Lease, \$20,161.86

66.Calculating Annuity Payments This is a classic retirement problem. A time line will help in solving it....