Problem 1. You want to buy a car, and a local bank will lend you $ 20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%?
Problem 2. Your parents will retire in 15 years. They currently have $ 230,000, and they think they will need $ 1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
Problem 3. If you deposit $ 12,000 in a bank account that pays 8% interest annually, how much will be in your account after 5 years?
Problem 4. What is the present value of a security that will pay $ 85,000 in 20 years if securities of equal risk pay 4% annually?
Problem 5. Assume that 1 year from now you plan to deposit $ 1,000 in a savings account that pays a nominal rate of 8%.
a. If the bank compounds interest annually, how much will you have in your account 4 years from now?
b. What would your balance be 4 years from now if the bank used quarterly com-pounding rather than annual compounding?
c. Suppose you deposited the $ 1,000 in 4 payments of $ 250 each at the end of Years 1, 2, 3, and 4. How much would you have in your account at the end of Year 4, based on 8% annual compounding?
d. Suppose you deposited 4 equal payments in your account at the end of Years 1, 2, 3, and 4. Assuming an 8% interest rate, how large would each of your pay-ments have to be for you to obtain the same ending balance as you calculated in part a?