Question 1

(5 points) Carlos goes to the bank to take out a personal loan. The stated annual interest rate is 12%, but interest is compounded monthly and he will make monthly payments. The effective annual interest rate (EAR) of the loan is less than 12%. Your Answer| | Score| Explanation|

False| | 5.00| Correct. You understand compounding.|

Total| | 5.00 / 5.00| |

EXCEL Function - EFFECT(0.12,12) 12 times Npery and rate .12 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 Answer| | Score| Explanation|

453412| | 5.00| Correct. You know how to calculate the FV of an annuity.| Total| | 5.00 / 5.00| |

FV of an annuity calculation. She should have a minimum of $144,000. 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

Your Answer| | Score| Explanation|

1548389| | 5.00| |

Total| | 5.00 / 5.00| |

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 Answer| | Score| Explanation|

660929| | 5.00| Correct. You know how to calculate the PV of an annuity.| Total| | 5.00 / 5.00| |

FV(.095,20,75000,0)

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

Your Answer| | Score| Explanation|

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

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 5.25% APR with monthly payments. How much will the Jacksons' first monthly payment be? Your Answer| | Score| Explanation|

1590| | 10.00| Correct. You know how to do a PMT calculation.| Total| | 10.00 / 10.00| |

=PMT(0.0525/12,360,288000,0) 5.25% interest rate monthly, 360 payments, 288K loan Question 7

(15 points) Baako has invested $75,000 in a trust fund at 9% for his child's college education. His child will draw $30,000 per year for four years, starting at the end of year 7. What will be the amount that will be left over in the education fund at the end of year 10 (just after the child has withdrawn the fourth time)?(Enter just the number without the $ sign or a comma; round off decimals.) Answer for Question 7

Your Answer| | Score| Explanation|

40358| |...

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