Explore BrainMass
Share

Basic Finance: Compound Interest, Rate of Return, Annuities

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

1. Today you borrow $80,000 to finance the purchase of your new sports car. Interest will be 5% compounded monthly. Payments will be made at the beginning of the month. You will repay the loan over 4 years. How much will the payments be?

2 If you borrow $100 and pay back $3600 in 5 years, what annual interest rate are you paying?

3. Find the present value of a $600 payment received at the beginning of every 6 months for 3 years with interest compounded 4% semiannually.

4. You invest $500 at the beginning of each month for 4 years. Interest is 3% compounded monthly. How much is in the account at the end of the four years?

5. Your parents placed $5,000 in a trust fund for you. In 12 years the fund will be worth $10,000. What is the rate of return on the trust fund?

6. Calculate the future value of $7000 4 years from now using a discount rate of 6%. Compound interest quarterly.

7. What is the present value of an annuity that pays $300 semiannually at the beginning of the next 6 years? Use a discount rate of 6%.

© BrainMass Inc. brainmass.com October 24, 2018, 6:13 pm ad1c9bdddf
https://brainmass.com/business/annuity/basic-finance-compound-interest-rate-of-return-annuities-35113

Attachments

Solution Preview

1. Today you borrow $80,000 to finance the purchase of your new sports car. Interest will be 5% compounded monthly. Payments will be made at the beginning of the month. You will repay the loan over 4 years. How much will the payments be?

PV = 80,000
Interest rate = 5% / 12 = 0.4167%
Number of periods = 4*12 = 48
FV = 0
Then by a financial calculator, we can compute payment each period = $1,834.70
You will repay the loan by $1,834.70 each month.

2 If you borrow $100 and pay back $3600 in 5 years, ...

$2.19
See Also This Related BrainMass Solution

Basic Finance: Annuities, Interest Rates, Rates of Return

1. Determine the future value of an annuity that pays $5,000 at the end of the next 11 years. Similar securities pay an interest rate of 7%.

2. How much money would you be willing to pay in order to receive $800,000 40 years from today? Assume that your required rate of return on investments is 8% compounded semiannually.

3. You are currently making $300 monthly payments on a $12,000 7% fixed interest loan that compounds interest monthly. At this rate how long will it take you to repay your loan?

4. You buy a home for $295,000 with a 15 year fixed mortgage that has an 8.75% interest rate compounded monthly. Determine (1) the monthly payment, and (2) the total interest, principle, and total cash outflow at the end of 1 year.

5. Your friend Jack hires ABC Lawn Service to trim the hedges in his garden. There are three payment options with the company. Which of the following three options should Jack choose if he can earn 8% interest compounded quarterly on his money?
a. Option 1 Pay $5650 cash immediately
b. Option 2 Pay $6750 in one lump sum two years from now
c. Option 3 Pay $800 at the end of each quarter for two years

6. Your boss wants to know which project had a better return. She says that Project Y returned $7,560 today on a $2,200 investment three years ago (use annual compounding for Project Y). She also says that Project Z returned $9,887 today and required investments of $367 each quarter for the last three years. Which project has a higher return?

View Full Posting Details