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AGEC $424$ EXAM 2 (119 points)
October 29/30, 2009
Name___________________________
Show your work for all questions.
Logically correct work, including calculator inputs and outputs when
appropriate, must be shown to receive credit for your answers.
I did not write “show your work here” on
the questions, but you still must show your work!
1.
Janet Elliott just turned 20, and received a gift of $20,000 from her rich uncle.
Janet plans ahead and
would like to retire on her 55th birthday.
She thinks she’ll need to have about $2 million saved by
that time in order to maintain her lavish lifestyle.
She wants to make a payment at the end of each
year until she’s 50 into an account she’ll open with her uncle’s gift.
After that she’d like to stop
making payments and let the money grow at interest until it reaches $2 million when she turns 55.
Assume she can invest at 7% compounded annually.
Ignore the effect of taxes.
a. (6 points) How much will she have to invest each year in order to achieve her objective?
b. (2 points) What percent of the $2 million will have been contributed by Janet (including the $20,000
she got from her uncle)?
2.
What are the monthly mortgage payments on a 30year loan for $150,000 at 12%?
a. (4 points) Show work and calculate the monthly payment
b. (10 points) Construct an amortization table for the first two months of the loan.
Month
Beg Bal
Payment
Interest
Prin. Reduction
End Balance
1
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(4 points)
First Bank offers you a car loan at an annual interest rate of 10% compounded monthly.
What effective annual interest rate is the bank charging you?
a.
10.38%
b.
10.42%
c.
10.45%
d.
10.47%
4.
(4 points) You want to purchase a boat that costs $40,000. You want to finance as much of the
purchase as possible with a 5year bank loan at 12% compounded monthly, but can only afford loan
payments of $750 per month. How much will you need as a down payment to buy the boat?
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 Spring '08
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