# sol_ch5 - 1 Exercise Chapter 5 • Ex 30 At the age of 10...

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Unformatted text preview: 1 Exercise: Chapter 5 • Ex 30: At the age of 10, Felix decided that he wanted to attend a very prestigious (and expensive) university. How much will his parents have to save each year to accumulate \$40,000 by the time Felix needs the funds in eight years? Assume Felix’s parents can earn 7 percent (compounded annually) on their savings, and that each year’s savings are deposited at the end of the year. Answer: x . 07 1 . 07 8- 1 = 40 , 000 x = 3 , 898 . 71 • Ex 46: After losing money playing on-line poker, Scott visits a loan shark for a \$750 loan. To avoid a visit form the “collection agency”, he will have to repay \$800 in just one week. What is the nominal interest rate per year? What is the effective interest rate per year? Answer: We compute the nominal interest rate, compounded weekly. Nominal annual rate: 50 750 × 52 = 6 . 67% × 52 = 346 . 67%. Effective annual rate: ( 1 + 50 750 ) 52- 1 = 2767 . 44%. • Ex 47: Josephine needs to borrow \$180,000 to purchase her new house in Yarmouth, Nova Scotia. She would like to pay off the mortgage in 20 years, making monthly pay- ment. For the initial three-year term, Providence Bank has offered her a quoted annual rate of 6.4%. A. What is the effective annual interest rate? B. What is the effective monthly interest rate? C. How much will Josephine’s monthly mortgage payments be? Answer: Effective Annual rate: ( 1 + 6 . 4% 2 ) 2- 1 = 6 . 5024%. Effective monthly rate: ( 1 + 6 . 4% 2 ) 1 / 6- 1 = 0 . 5264%. Monthly Payment: x . 5264% h 1- 1 (1+0 . 5264%) 12 × 20 i = 180 , 000, x = 1 , 322 . 69....
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## This note was uploaded on 11/12/2009 for the course FIN FIN201 taught by Professor Damiano during the Summer '07 term at University of Calgary.

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sol_ch5 - 1 Exercise Chapter 5 • Ex 30 At the age of 10...

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