TIME VALUE OF MONEY PROBLEMS
1. 1)I borrow $10,000 to be paid back over five years.
(a) If the interest rate is 8%, what is the annual payment?
(b) If the annual payment is $2,350.00, what is the interest rate?
(c) In part (a) the payments are quarterly. How big are they?
(d) In part (a) the payments are monthly. How big are they?
(e) For part (a), the annual version, write the amortization table.
2. 2)I am saving up to buy a house and need a $30,000 down payment.
(a) If I make annual payments for ten years into the account and will earn 6%, how big are the payments?
(b) If the payments are monthly how big are they?
(c) If I start with $2,500.00 in the account, how big must the payments be in part (a)?
3. 3)You are thinking of buying a house and need a $200,000 mortgage.
(a) If you get a thirty-year, 6% mortgage, what will the monthly payments be?
(b) What will be the interest component of the first payment? How much principal will you pay back?
(c) After 10 years you sell the house. How much do you still owe on the mortgage?
(d) If you get a fifteen-year, 3% mortgage what will the monthly payments be?
(e) How much of the first payment will be interest? How much will be principal?
(f) After 10 years you sell the house. How much do you still owe on the mortgage?