Time Value of Money Problem Assignment – Week 3
Prepare solutions to the following problems and submit them as instructed by your section instructor. Show all calculations, or identify the sequence of steps and buttons to your financial calculator, to support the solutions you submit. John is purchasing a house for $500,000. He plans to make a down payment of $100,000 and take out a 30-year mortgage for $400,000. If the interest rate on the house is 5.5 per cent per year, how much will his monthly payment be for principal and interest.If the interest rate is the same, how much would his monthly payment for principal and interest be if he took out a 15-year mortgage? How much interest will John save in total with the 15-year mortgage? In a recent large PowerBall lottery, the prize was reported to be worth $590 million, which could be taken in 25 equal annual installments of $23.6 million beginning today or as a single payment today of $334 million. What interest rate is the lottery commission using?
How would you decide whether to take the 25 year annuity or the lump sum? Northeastern costs approximately $50,000 per year for a four-year program, whether completed in four years or five. Assume that a student’s parents realized 15 years ago that college was going to cost $50,000 per year for four years, and wondered how much they would have to save each year to have the money to pay for the student’s education. The assumption is that payments are made into the college fund each year (as an ordinary annuity), and payments are withdrawn from the fund at the end of the relevant years.The key information for this scenario is as follows: The number of years of contributions is 18.
Assume for simplicity that the college payments will be made at the end of years 15, 16, 17, and 18, that is just after each deposit in those years. The interest rate is 10 percent.
College costs are $50,000 per year, and are assumed to be the same for each of the...
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