# PV FV Monthly Compounding

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1. Suppose the interest rate is 7% APR with monthly compounding. What is the present value of an annuity that pays $80 every 3 months for 4 years?

The present value of the annuity is $ (round to two decimal places)

2. If you deposit $1 into a bank account that pays 0.5% per month for three years, the amount you will receive after the three years is: $ (round to 5 decimals)

3. You are buying a house and the mortgage company offers to let you pay a "point" (1.0% of the total amount of the loan) to reduce your APR from 5.50% to 4.75% on your $400,000, 30-year mortgage with monthly payments.

If you plan to be in the house for at least 5 years, should you do it?

The monthly mortgage payment at 5.50% APR is $ (round to the nearest cent)

4. If the rate of inflation is 4%, what nominal interest rate is necessary for you to earn a 2% real interest rate on your investment?

The nominal interest rate is ______% (enter your response as a percent reoundedto one decimal place

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PV and FV monthly compounding is examined.

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MATH PROBLEMS

1. Suppose the interest rate is 7% APR with monthly compounding. What is the present value of an annuity that pays $80 every 3 months for 4 years? The present value of the annuity is

Year 1 2

Period 0 (C) 3 6 9 12 15 18 21

Amount paid $80 (A) $80 $80 $80 $80 $80 $80 $80

Interest rate 0.58% (B) 0.58% =7%/12 0.58% 0.58% 0.58% 0.58% 0.58% 0.58%

Discount factor 1.00 ...

###### Education

- B. Sc., University of Nigeria
- M. Sc., London South Bank University

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