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3 a balloon payment of 21000 on your house is due in

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3. A balloon payment of \$21,000 on your house is due in 10 years. If you can earn an average of 5 percent per year for the 10-year period, how much will you have to place into an account today to have the \$21,000 in 10 years? If you had the present value of the lump sum available in your bank account today could you substitute this for the balloon payment? PV = FV ( PVF ) = \$ 21,000 [ 1 ( 1 + 0.05 ) 10 ] = \$ 12892.18 If I have the present value of the lump sum available, I can possibly substitute the balloon payment. However, it will also depends on the interest rate of the bank to decide whether or not it is a good decision to substitute now or to pay the due in 10 years. 4. The face values of a simple interest note and bank discount note are \$8,000 each. Assume both notes have 8.75 percent interest rates for 60 days. Calculate the following: a. The amount of interest charged for each. Simple Interest Note: I = Prt = \$ 8000 x 0.0875 x 60 365 = \$ 115.07 Bank Discount Note: D = Sdt = \$ 8000 x 0.0875 x 60 365 = \$ 115.07

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b. The maturity value of the simple interest note = \$8,000 + \$115.07 = \$8115.07 c. The maturity value of the bank discount note = \$8,000 d. The amount the borrower receives for the simple interest note = \$8,000 e. The amount the borrower receives for the bank discount note = \$8,000 - \$115.07 = \$7884.93

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