The best way to study is to attempt to do these exercises on your own before looking at the answers. If you are working through these exercises before completing the third finance lab, use a calculator to find the answers to A, B, and C and when you get to part D, prepare only the first three lines of the table (through period 2). After completing the third finance lab, come back and redo the exercises using Excel.
Before working on these problems, you might want to read the section on how to use a calculator.
1. A man takes out a loan of $5,000 at 11.6% compounded quarterly for 4 years.
A. How large are his quarterly payments?
B. How much interest will he pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
E. Create a line graph illustrating the decline in the balance due.
2. A couple takes out a 30-year mortgage of $100,000 at 9.6% compounded monthly.
A. What is the size of their monthly payment?
B. How much interest will they pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
E. Create a line graph illustrating the decline in the balance due.
F. Create an area graph that illustrates how each payment is divided between interest and balance reduction.
3. Repeat problem 2 with an interest rate of 8.6% compounded monthly.
A. What is the size of their monthly payment?
B. How much interest will they pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
E. Create a line graph illustrating the decline in the balance due.
F. Create an area graph that illustrates how each payment is divided between interest and balance reduction.
4. Repeat problem 2 but with a 25-year term.
A. What is the size of their monthly payment?
B. How much interest will they pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
E. Create a line graph illustrating the decline in the balance due.
F. Create an area graph that illustrates how each payment is divided between interest and balance reduction.
5. A woman borrows $18,000 to buy a new car. She pays 5.4% compounded monthly for five years.
A. What is the size of her monthly payment?
B. How much interest will she pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
E. Create a line graph illustrating the decline in the balance due.
6. A couple invest $1,000 every six months for 30 years into a retirement account earning 4.7% compounded monthly. At the end of that time they plan to withdraw a fixed amount each month for 20 years at which time the account balance will be reduced to zero.
A. How much will they be able to withdraw each month.
B. How much total interest will they earn throughout the 50-year span?
C. Find the annual percentage yield for this investment.
D. Prepare a table that shows the change in the account balance over the entire 50-year span.
E. Create a line graph illustrating the change in the account balance over the entire 50-year span.
