1. 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 $27,000 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 15 years at an estimated cost of $469,000. 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 $1,600 per month for the next 15 years.
Required:
If he can earn a 9 percent EAR before he retires and a 5 percent EAR after he retires, how much will he have to save each month in years 16 through 30?
A) $11,586.50
B) $11,082.79
C) $10,865.48
D) $10,648.17
E) $11,713.22
2. You want to buy a new sports car from Muscle Motors for $38,000. The contract is in the form of a 36-month annuity due at a 6.50 percent APR.
Required:
What will your monthly payment be?
A) $1,135.22
B) $1,181.56
C) $1,158.39
D) $1,100.47
E) $1,164.66