Annuity Assignment - THANGARAJ MATH



Annuities: REVIEW



A= R[(1+i)n – 1]/i P=R[1- (1+i)-n]/i A=P(1+i)n P=A(1+i)-n

1. Determine the future value of an annuity with semi-annual deposits of $1000, earning 6% interest per year compounded semi-annually, over 20 years.

a) Solve using a formula.

b) Check your answer using the on-line calculator.

2. You take out a loan of $10 000.

a) Find the monthly payment needed to pay off the loan over 2 years if interest is at 8% per year compounded monthly. Use the on-line calculator.

b) How much do you pay back in total?

Total Paid Back =

c) How much interest do you pay?

Interest =

3. If you want a million dollars at age 65, how much would you have to contribute monthly into an investment that pays 7% per year, compounded monthly if you start depositing at age 20? Use the on-line calculator.

4. How much would you need to deposit per month if you only started depositing at age 50? (Same question as #3, you just start depositing later)

5. You purchase s $200 000 home with a $25 000 down payment, and you mortgage the balance at 6.5% per year, making monthly payments. Use the on-line amortization table maker to determine the total interest you will pay.

6. How will the interest paid in the first monthly payment differ from the amount of interest paid in the 25th year? Why?

7. Calculate the interest saved on a $100 000 mortgage with monthly payments at 6% per year, when it is amortized over 20 years rather than 25 years. Use .

8. If you had to chose between the following two banks to invest your money, which would you choose? Justify your answer.

Bank 1: Interest of 4% compounded semi-annually

Bank 2: Interest of 4% compounded weekly

9. If you had to chose a credit card company, which would you choose? Justify your answer.

Company 1: Interest of 18% compounded daily

Company 2: Interest of 18% compounded monthly

10. You buy a car and put down a $1500 down payment. You pay off the rest of the car in monthly payments of $300 for 4 years. If you are charged 6% per year interest compounded monthly, what was the price of the car?

11. Explain what an RRSP is.

12. Explain what a RESP is.

13. Explain how a RRIF is different from an RRSP.

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