Determine through investigation using technology the ...





Unit 3b: Lesson 5

CHANGING CONDITIONS ON AN ANNUITY

1. Nadia borrows $5000 and pays off the loan over 4 years in yearly payments. She is charged 7.2% interest/ compounded yearly.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

2. Nadia borrows $5000 and pays off the loan over 4 years in semi-annual payments. She is charged 7.2% interest/ compounded semi-annually.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

3. Nadia borrows $5000 and pays off the loan over 4 years in quarterly payments. She is charged 7.2% interest/ compounded quarterly.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

4. Nadia borrows $5000 and pays off the loan over 4 years in monthly payments. She is charged 7.2% interest/ compounded monthly.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

5. Nadia borrows $5000 and pays off the loan over 4 years in bi-weekly (every 2 weeks) payments. She is charged 7.2% interest/ compounded bi-weekly.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

6. Nadia borrows $5000 and pays off the loan over 4 years in weekly payments. She is charged 7.2% interest/ compounded weekly.

a) What are her regular payments?

b) How much does she pay in total to cover the loan?

7. What conclusion can you make from your answers above?

8. Brtukuan is considering two investment options for saving $500 a month.

Option 1: monthly payments of $500, invested at 6% per year, compounded monthly.

Option 2: semi-monthly payments (on the 15th and 30th of each month) of $250, invested at 5.85% per year, compounded semi-monthly.

a) Determine the future value of each investment option after one year.

b) Which investment option has a greater future value? How much interest does this option earn?

c) Assume that the interest rate and the payment remain the same for the investment option above. Determine the future value of this investment option in 10 years.

9. Adam needs to repay a $1500 loan. His bank offers personal loans for one to five years at 8.5%, compounded monthly.

a) What is the monthly payment if Adam selects a one year term?

b) How much interest will he pay with this option?

c) What is the monthly payment if Adam selects a two year term?

d) How much interest will he pay with this option?

e) What is the monthly payment if Adam selects a five year term?

f) How much interest will he pay with this option?

g) What conclusion can you make based on your answers in b,d,and f?

10. CIBC offers $5000 loan at 7% per year, compounded annually for five year.

TD offers a $5000 loan at 8% per year, compounded annually for four years.

a) Which loan has a greater cost? Explain.

b) Which loan has a greater monthly payment? Explain.

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