Week_4_Homework_Solutions - SOLUTIONS FOR WEEK #4 THREADED...

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SOLUTIONS FOR WEEK #4 THREADED QUESTIONS BA II PLUS 1) Mrs. Costa intends to purchase a home for $160,000. Furthermore, she intends to put down 20% and finance the remainder over 15 years at 6 3/8% interest. If her taxes & insurance totals $3,600 per year, how much will her total monthly payment be? Solution: Principal = $160,000 (PV) Interest = 6.375% (I/Y) Time = 15 years (N) 20% down payment Since it is assumed that you will be making 12 payments per year it is not necessary to go in and “tell” the calculator “12”. The calculator automatically defaults to: P/Y = 12.00 A 20% down payment means that 80% is being financed, thus: $160,000(.8) = $128,000, the amount to be financed. Now just hit PV. This enters the financed amount as the Present Value. Now enter 6.375, I/Y. 3/8 is .375 NOT .38. Then enter 15 2 nd , N, N . The result of 180 represents the number of payments you will be making over a period of 15years. Now hit CPT, PMT and your answer should look like this: PMT = -1,106.24 This is you mortgage payment which consists of principal and interest only. Note: The PMT shows as a negative reinforcing the statement that anything that goes out of your pocket is negative. The payment is definitely going out of your pocket! Now take the $3,600/12 = $300 per month in taxes and insurance which gets added to the mortgage payment resulting in your total monthly payment of $1,406.24.
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2) Bobbie Rae is lending Tommy Lee $4,500 to open up a bait shop at one of the nearby lakes. Tommy Lee says he will repay Bobbie Rae at the end of 4 years with 7% interest compounded quarterly. How much will Bobbie Rae receive at the end of the 4 years? Hint: Treat this like a one time investment problem. Borrowed Amount = $4,500 (PV) Rate of Interest = 7% (I/Y) Time = 4 years (N) Compounding periods per year = 4 Total Payback =? (FV) You first need to tell the calculator how many compounding periods there are in one year. To do this you need to select 2 nd , P/Y. This will show you the following: P/Y = 12.00 Since you know that whatever you change “P/Y” to “ C/Y” will change to the same thing. Therefore hit the number “4” for quarterly and then hit ENTER. You have just let the calculator know that the problem calls for compounding periods in one year to be quarterly. Now enter the PV, I/Y and the 4 years in as follows: $4,500 = PV 7. = I/Y 4. = 2 nd , N, N (you get 16) Now hit CPT, FV, the resulting answer is $5,939.68 , the amount Tommie Lee has to pay back Bobbie Rae at the end of 4 years. Note: FV is negative because it is money that Tommie Lee has to pay out of his pocket. To do this problem using the formula A = P (1 + i)
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This note was uploaded on 12/13/2010 for the course GM 400 taught by Professor - during the Spring '10 term at Keller Graduate School of Management.

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Week_4_Homework_Solutions - SOLUTIONS FOR WEEK #4 THREADED...

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