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Exam2_Fall2009

# Exam2_Fall2009 - Name ID AMS 318 Midterm 2 1 Beginner 1 You...

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Name: ID: AMS 318 Midterm 2 October 28, 2009

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1 Beginner 1. You accept a loan of \$100 , 000 and plan on making monthly payments of \$1 , 000 (at the end of the month) to rid yourself of the debt. How much money do you still owe at the end of 10 years if the annual interest rate is 7%? 2. You accepted a large loan to pay for a house. To pay off the loan you make end of month payments of \$10 , 000 for several years. With only 2 years left before the loan is repaid, and assuming i (12) = . 08, how large of a payment should you make to completely pay off the loan?
2 Intermediate 1. A perpetuity is arranged with an unusual payment plan. The first payment is in a year and pays n , followed by a payment of n - 1 the second year, n - 2 the third year, and so on until 1 is paid the n th year. A payment of 1 is paid at the ( n + 1) st year , 2 at ( n + 2) nd year, and so on until n is paid at year 2 n . Payments of n then continue forever. Write the present value of this perpetuity in terms of annuity symbols.

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2. Suppose you are paying back a loan of \$10 , 000 via the sinking fund method.
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