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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 Answer| | Score| Explanation|

12.55| ✔| 5.00| Correct. You know compounding and how to calculate EAR.| Total| | 5.00 / 5.00| |

Question Explanation

Basics of compounding; mechanics.

Question 2

(5 points) Ranjit began setting aside $6,000 per year in a mutual fund at the age of 25. He has turned 34, and has just made a deposit. The mutual fund has returned 6.5% annually. How much does Rajit have in his account today? Your Answer| | Score| Explanation|

80967| ✔| 5.00| Correct. You know how to calculate the FV of an annuity.| Total| | 5.00 / 5.00| |

Question Explanation

Basic FV calculation. He should have a minimum of $60,000. Why? Question 3

(5 points) Dominique has just turned 65 and she has deposited her annual payment of $20,000 into her retirement account. She made her first such saving deposit into this fund on her 35th birthday. Dominique has also retired and wants to figure out how much money she has in her retirement account for her retired life. You are Dominique's friend who knows finance. How much is Dominique's savings worth today given that the fund has earned an annual return of 5.5%? (Enter just the number without the $ sign or a comma; round off decimals.) Answer for Question 3

You entered:

Your Answer| | Score| Explanation|

1448710| ✘| 0.00| |

Total| | 0.00 / 5.00| |

Question Explanation

FV of an annuity calculation. Draw a time line. The minimum she has is $620,000. Why? Question 4

(5 points) Marcel has just graduated from college and has found a job that will pay him $25,000 per year at the end of each year, but the job is only for 5 years. He is not worried about that because he plans to do an MBA after gaining 5 years experience anyway. What is the value today of his 5-year salary assuming that the interest rate is 3%? Your Answer| | Score| Explanation|

114493| ✔| 5.00| Correct. You know the mechanics of calculating the PV of an annuity.| Total| | 5.00 / 5.00| |

Question Explanation

Mechanics of the calculation of the PV of an annuity. The maximum value of his entire 5-year salary is $125,000. 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

You entered:

Your Answer| | Score| Explanation|

3959| ✔| 10.00| Correct. You know how to calculate the PV of an annuity.| Total| | 10.00 / 10.00| |

Question Explanation

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

Question 6

(10 points) Melanie and Stephen Jackson are purchasing their first house. The house costs $360,000. They have put a 20 percent down payment (that is, an amount that banks should require you to pay out-of-pocket), but will therefore finance the rest. They are considering a fixed rate 30-year mortgage at a...