1. (20 pts.) The wholesale price of a refrigerator is $350.
a. What is the retail price if the retailer applies a 22% markup?
350 × 0.22 = 77 and 350 + 77 = $427
350 + 350 × 0.22 = 350(1 + 0.22) = 350 × 1.22 = $427
b. If the refrigerator goes on sale at 15% off, what is the sale price?
427 × 0.15 = 64.05 and 427.00 - 64.05 = $362.95
427 - 427 × 0.15 = 427(1 - 0.15) = 427 × 0.85 = $362.95
c. If the retailer includes the refrigerator in a BLOWOUT SALE at 5% off the already low sale price, what is the blowout sale price?
362.95 × 0.05 = 18.15 and 362.95 - 18.15 = $344.80
362.95 - 362.95 × 0.05 = 362.95(1 - 0.05) = 362.95 × 0.95 = $344.80
d. If a consumer buys the refrigerator at the blowout sale price and the final cost including sales tax is $362.90, find the sales tax rate as a percent to 2 decimal places.
Tax = 362.90 - 344.80 = $18.10
Tax Rate = Tax / Price = 18.10 / 344.80 = 0.0524941995 = 5.25%
2. (16 pts.) What is the cost of a $500 savings bond that matures in eight years if it pays 6.2% interest compounded monthly? How much interest would you earn? What is the annual percentage yield of this investment (as a percent to 3 decimal places)?
Use your Excel model to determine the interest rate if this savings bond cost $350 to purchase.
Use the Goal Seek tool to set the present value to $350 by changing the nominal interest rate. You should get 4.467% compounded monthly.
3. (16 pts.) If you invested $120 a month into a savings account paying 3.4% compounded monthly, how much would you have in ten years and how much interest would you have earned? What is the annual percentage yield of this investment (as a percent to 3 decimal places)?
Use your Excel model to determine how long it would be until there was at least $5,000 in the account.
Use the Goal Seek tool to set the future value to $5,000 by changing the number of years. Rounding the number of months up to the nearest integer, you should get 40 months (3 years and 4 months).
4. (16 pts.) How much could you borrow on a four year loan at 6.9% compounded monthly if you could afford to pay $250 a month? How much interest would you pay? What is the annual percentage rate for this loan (as a percent to 3 decimal places)?
Use your Excel model to determine the term of this loan if you wanted to borrow just $8,000.
Use the Goal Seek tool to set the present value to $8,000 by changing the number of years. Rounding the number of months up to the nearest integer, you should get 36 months or 3 years.
5. (16 pts.) If you deposited $1,000 in a savings account paying 5% compounded semiannually, how much would you have in 60 years and how much interest would you have earned? What is the annual percentage yield of this investment (as a percent to 3 decimal places)?
Use your Excel model to determine what interest rate would be necessary to result in a future value of $15,000.
Use the Goal Seek tool to set the future value to $15,000 by changing the nominal rate. You should get 4.565% compounded semiannually.
6. (16 pts.) How much would you have to invest each quarter at 4.1% compounded quarterly if your goal was to have $50,000 in ten years? How much interest would you earn? What is the annual percentage yield of this investment (as a percent to 3 decimal places)?
Use your Excel model to determine what interest rate would be needed if you could only afford to invest $1,000 each quarter.
Use the Goal Seek tool to set the quarterly payment to $1,000 by changing the nominal annual rate. You should get 4.436% compounded quarterly.
7. (16 pts.) Find the monthly payments on a 25-year mortgage of $180,000 if the interest rate is 7.1% compounded monthly. How much will you pay in interest? What is the annual percentage rate for this loan (as a percent to 3 decimal places)?
Use your Excel model to determine how long it would take to pay off a mortgage of $180,000 if you paid $1,400 per month.
Use the Goal Seek tool to set the monthly payment to $1,400 by changing the number of years. Rounding the number of months up to the nearest integer, you should get 243 months or 20 years and 3 months.
The Excel models for problems 2-7 can be found in: FinanceTestAnswers.xlsx