# Introduction to F. — Assignment 2

Topics: Money, Annual percentage rate, Question Pages: 5 (1422 words) Published: January 29, 2013
Feedback — Assignment 2

You have submitted this Assignment on Sun 5 Aug 2012 2:32:29 AM PDT. You achieved a score of 90.00 out of 100.00. Please read all questions and instructions carefully. Note that you only need to enter answers in terms of numbers and without any symbols (including \$, %, commas, etc.). Enter all dollars without decimals and all interest rates with up to two decimals. Read the syllabus for examples. The points for each question are listed in parentheses at the start of the question, and the total points for the entire assignment adds up to 100. Question 1

(5 points) Qin deposits his first paycheck in the bank. The annual interest rate is 12%, but interest is compounded quarterly. The EAR is: Your AnswerScoreExplanation
12.555.00Correct. You know compounding and how to calculate EAR. Total5.00 / 5.00
Question Explanation

Basics of compounding; mechanics.
Question 2

(5 points) Gloria is 35 and trying to plan for retirement. She has put a budget together and plans to save \$4,800 per year, starting at the end of this year, in a retirement fund until she is 65. Assume that she can make 7% on her account. How much will she have for retirement at age 65? Your AnswerScoreExplanation

4534125.00Correct. You know how to calculate the FV of an annuity. Total5.00 / 5.00
Question Explanation

FV of an annuity calculation. She should have a minimum of \$144,000. Why? Question 3

(5 points) Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account for him since he was 5 years old. His mother has asked him to guess what his account is worth given that they have invested \$1,000 every year in the account starting on his 5th birthday and have just made one. The interest rate on the account has been 3.5% annually. How much is Mohammad’s account worth today? (Enter just the number without the \$ sign or a comma; round off decimals.) Answer for Question 3

0.00
Total0.00 / 5.00
Question Explanation

FV value of an annuity calculation. Draw a time line. The amount should be a minimum of \$17,000. Why? Question 4

(5 points) Gerard has estimated that he is going to need enough in his retirement fund to withdraw \$75,000 per year beginning on his 66th birthday and for 19 additional years thereafter. How much will Gerard need in his retirement account at age 65 if his fund is expected to earn an annual return of 9.5%? Your AnswerScoreExplanation

6609295.00Correct. You know how to calculate the PV of an annuity. Total5.00 / 5.00
Question Explanation

Mecahnics of calculating the PV of an annuity. The amount has to be a maximum of \$1,500,000. Why? Question 5

(10 points) Rachna is considering a life insurance plan that will require her to pay a premium of \$200 every year for the next 40 years. She wants to make sure that she is able to make this payment and wants to put away a lump sum today in her bank to cover all future payments. How much would she need to deposit in her bank if the annual interest rate on her deposit account is 4%? (Enter just the number without the \$ sign or a comma; round off decimals.) Answer for Question 5

395910.00Correct. You know how to calculate the PV of an annuity. Total10.00 / 10.00
Question Explanation

PV of an annuity. Cannot be more than \$8,000. Why?
Question 6

(10 points) Roxanne is in the market for a new house, and she has found a house she likes that is selling for \$250,000. The down payment on the house is 20% (the amount that the bank should require you to pay in cash) and Roxanne plans to finance the remainder with a fixed rate mortgage. The annual rate is 6% and the mortgage is for 15 years, though payments are monthly. What is the interest component of Roxanne's first monthly payment? Your AnswerScoreExplanation

100010.00Correct. Interest is paid on what you have borrowed for that period....