ENG 106 Homework #4 Winter 2012 Due: Wed, Feb 8, 3 pm, homework box 4.7 An annuity provides for 10 consecutive end-of-year payments of $8,500. The average general inflation rate is estimated to be 5% annually, and the market interest rate is 12% annually. What is the annuity worth in terms of a single equivalent amount of today’s dollars? 4.10 The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at 12% interest compounded monthly. If the general inflation rate is 6% compounded monthly, find the actual and constant dollar value of the 20thpayment of this loan. 4.a Market interest rate i=9%/yr, and inflation rate f=3.8%/yr. Begin with an equal-payment series in constant (year-zero) dollars of A’ = $1000 at the end of each of three years beginning at EOY 1. Convert this to an actual-dollar equal-payment series of A over the same three years, i.e., determine the amount A. (answer: $1076.) 4.15 Suppose that you borrow $20,000 at 12% compounded monthly over five years. Knowing that the 12% represents the market interest rate, you compute the monthly payment in actual dollars as $444.90.
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