Chapter 4 - class.pdf

Chapter 4 - class.pdf - Problem 1 Suppose you buy a house...

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1 Chapter 4 Practice Problems –TIME VALUE OF MONEY APPLICATIONS Problem 1. Suppose you buy a house today with a price of $25,000 and you plan to pay it within the next 6 years. If you are going to make equal annual end-of-year payments to an investment account that pays 7%, how big do these annual payments need to be? 2. If you can earn 12% on your investments, and you would like to accumulate $100,000 for your child s education at the end of 18 years, how much must you invest annually to reach your goal? Problem 3. What is the present value of an annuity of $10,000 to be received at the end of each year for 10 years given a 10 percent discount rate? 4. Suppose you plan to get a $9,000 loan from a furniture dealer at 18% annual interest with annual payments that you will pay off in over five years. What will your annual payments be on this loan? Problem 5. You have just found the perfect home. However, in order to buy it, you will need to take out a $300,000, 30-year mortgage at an annual rate of 6 percent. What will your monthly mortgage
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