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Unformatted text preview: Extra Problems for Test 1: 1. Suppose you are ready to buy your ﬁrst house. To buy the house, you will take out a $140,000 mortgage from the bank. The bank offers you the mortgage for 30 years at an APR of 6.0% with interest
compounded monthly. a. What is the size of your monthly payment?
b. For your tenth payment, what is the reduction in principal?
c. How many payments have been made when the remaining balance in your loan reaches $100,000? IV: 30 yew: WV =¢/4o/ 000 4/3 yum : Jam/Z " 360
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' '‘ 17834 made 2. A baseball player is offered a 5year contract that pays him the following amounts: 1
Year 1: $1.0 million
Year 2: 1.5 million
Year 3: 2.0 million
Year 4: 2.5 million
Year 5: 3.0 million Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the
contract, the baseball player asks his agent to negotiate a contract that has a present value of $1.5 million
more than that which has been offered. Moreover, the player wants to receive his payments in the form of a
5year ANNUITY DUE. All cash ﬂows are discounted at 10 percent. If the team were to agree to the
player's terms, what would be the player's annual salary (in millions of dollars)? ,9 [30/ 10V 0/ Gov/M71 0471/4471] 19V: QQ 40, (F. ‘55? 225”), '25 CF, 3.0]
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lot/”K new Contra}: #727 + 90.575 :3 9.7L «9 Convert 7" ANA/arr? 9'46: {e71 {pgec/ENO 3. A young graduate is planning on buying a new car in two years. The car the young graduate wants
is a BMW 3—Series that will cost $42,000 in two years. To pay for the car, the graduate will invest money each month in a money market fund (Beginning ] Qday). The fund will pay 4.8% annually with monthly
compounding. The other source of funding for the car will come from a bank loan that the graduate will
take out from the local bank the day he purchases the car. The graduate believes he can get a 60month bank loan at a rate of 6.6% APR, and monthly payments of $425. To buy the BMW, what monthly
contributions must he make to the money market fund for the next 2 years? sﬁvme M? CR4 <v—————. LOAN
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4. Suppose you have been out of UGA for quite some time and are planning the college education for your two children. The ﬁrst child will begin college in 15 years, while the other will begin in 17 years.
You estimate your children’s college expenses to be $21,000 per year per child. Both will attend for four
years. The annual interest rate is 15 percent. How much money must you deposit in an account each year
to fund you children’s education? You will begin payments one year from today. You will make your last deposit when your oldest child enters college. 24 00° “1°00 42000 Hvwc) .00 \000
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 Spring '08
 LAPLANTE

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