Annuity Assignment - THANGARAJ MATH



Test: Annuities

|Expectation |R |1 |2 |3 |4 |

|Demonstrate an Understanding of Annuities | | | | | |

|Communication | | | | | |



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

Part A: Level 2

1. Determine the future value of an annuity with quarterly deposits of $4000, earning 6% interest per year compounded quarterly, over 10 years.

a) Solve using a formula.

b) Check your answer using the on-line calculator. Show what you would input into the on-line calculator below.

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2. You buy a car and take out a loan. You make monthly payments of $300 for 4 years. If the interest rate is 4.8% compounded monthly, what was the original price of your car?

a) Solve using a formula.

b) Check your answer using the on-line calculator. Show what you would input into the on-line calculator below.

[pic]

3. Create an amortization table online for a mortgage of $180 000 paid over 20 years.

a) How much interest will you pay over the life of the mortgage?

b) What is the monthly payment?

c) How much interest do you pay in the first monthly payment?

c) How much towards paying off the actual loan do you pay in the first payment?

5. You want to save a million dollars for retirement by making monthly deposits into an annuity. Will your monthly payments be larger if you make deposits for 40 years or for 45 years? Justify your answer.

4. Which annuity is used to save for your child’s education? RRIF, RRSP, RESP?

Part B: Level 3 – YOU MAY USE THE ONLINE CALCULATOR TO ANSWER ALL THE REST OF THE QUESTIONS

1. You deposit $50 in the bank each month for 5 years. Your account earns 3.6% compounded monthly.

a) How much will you annuity be worth in 5 years? Show what you would input into the on-line calculator below.

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b) How much did you deposit in total?

c) How much interest do you earn?

2. You take out a loan of $20 000.

a) Find the monthly payment needed to pay off the loan over 3 years if interest is at 8% per year compounded monthly. Use the on-line calculator. Show what you would input into the on-line calculator below.

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b) How much do you pay back in total?

c) How much interest do you pay?

5. You purchase a home for $240 000 home by making a $35 000 down payment and mortgaging the rest over 20 years with monthly payments at 5% per year.

a) Use the on-line amortization table maker to determine the total interest you will pay.

b) How will the amount of interest paid in the first monthly payment compare with the amount in the last monthly payment? Explain the difference.

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 quarterly

Bank 2: Interest of 4% compounded monthly

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

Company 1: Interest of 18% compounded weekly

Company 2: Interest of 18% compounded semi-annually.

Part C: Level 4

1. You buy a computer and put down a $500 down payment. You pay off the rest in monthly payments of $150 for 4 years.

a) If you are charged 8% per year interest compounded monthly, what was the price of the computer? Show what you would input into the on-line calculator below.

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b) How much did you have to pay in interest because you had to take out the loan rather than pay in cash at the beginning.

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

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