Practice Test: Financial Applications



1) Mr. Smith wants to save up some money to buy a collector’s edition of Raffi’s Christmas. He is going to put 25$ away every month for the next 6 months. He can get an interest rate of 7.2% compounded monthly. 54381409588500a) Determine the interest rate per month (i):b) Determine the number of deposits Mr. Smith will make (n):c) Complete the following table to determine how much Mr. Smith will have saved.TimeStarting BalanceInterest Earned (use calculated “i”)DepositEnding Balance1 month0$0$2 months3 months4 months5 months6 months394144511430(deposits)00(deposits)d) Use the TVM solver to verify your answer from part c)e) Use the formula A=R1+in-1i to verify your answers from c) and d)2) Part of an amortization table is shown below. Determine the missing values in the table. Justify your answers.675640140335003) Bort is getting ready to buy a home. He sees one that he likes that is $265,000. He will make a 20% down payment, and borrow the rest of the money at 2.65% compounded semi-annually. Bort plans on making weekly payments for 20 years. 362162034925(payments)00(payments)a) Determine Bort’s weekly mortgage payment.b) How much will Bort pay in interest to buy his house? 365210032385(payments)00(payments)a) If Bort made bi-weekly payments instead, determine Bort’s bi-weekly mortgage payment.b) How much will Bort pay in interest to buy his house using bi-weekly payments? 4) A car dealership advertises a brand new car for only $399 per month. They charge 5.2% interest compounded monthly, and monthly payments would be made for 5 years. Determine what the equivalent cash price of the car would be two ways:a) Using the TVM solver (solve for PV)b) Use the formula-66675179705(withdrawals)00(withdrawals)PV=R1-1+i-ni5) Dr. Evil has saved up 1 million dollars ($1,000,000) for his retirement (maybe to buy his son Scott some sharks with frickin’ laser beams!). The money is in an account that pays 3.2% interest compounded monthly.a) Dr. Evil plans on living off of this money for 30 more years. How much can he withdraw per month? 3314700160655(withdrawals)00(withdrawals)4841459132334000b) How much money does Dr. Evil withdraw in total over these 30 years? c) How much interest did Dr. Evil make over these 30 years? Retirement Planning6) In this question, you will be planning for your retirement using the TVM solver. You will be keeping your money in an account that pays 6% compounded monthly. 437959531750(deposits)0(deposits)a) Choose the following parameters for your retirement scenario!How long will you work for (in years)?: ____________________________How much will you invest each month?: ___________________________Use the TVM solver to determine how much you will have at retirement:438150056515(withdrawals)0(withdrawals)b) It is now time to live off of your money. Take your FV answer from a), and make it your PV for this problem.How long will you need your money to last (in years)?: _______________Use the TVM solver to determine how much you can withdraw each month. c) How much of your own money did you deposit over your working career?d) How much money did you withdraw over your retirement?e) How much interest did you make over your lifetime?7) Describe 3 specific things you learned about either RRSPs or RESPs during your research project this unit. 8) Napolean is thinking about how to invest his money, and uses the TVM Solver to compare two annuities:-19055651500a) Describe each annuity.b) Which annuity do you think Napolean should choose? ................
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