4.4.1: Present Value of an Annuity and Installment Payment (Exercises)
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SECTION 6.4 PROBLEM SET: PRESENT VALUE OF AN ANNUITY AND INSTALLMENT PAYMENT
For the following problems, show all work.
| 1) Shawn has won a lottery paying him $10,000 per month for the next 20 years. He'd rather have the whole amount in one lump sum today. If the current interest rate is 8.2%, how much money can he hope to get? | 2) Sonya bought a car for $15,000. Find the monthly payment if the loan is to be amortized over 5 years at a rate of 10.1%. |
| 3) You determine that you can afford $250 per month for a car. What is the maximum amount you can afford to pay for a car if the interest rate is 9% and you want to repay the loan in 5 years? | 4) Compute the monthly payment for a house loan of $200,000 to be financed over 30 years at an interest rate of 10%. |
| 5) If the $200,000 loan in the previous problem is financed over 15 years rather than 30 years at 10%, what will the monthly payment be? | 6) Friendly Auto offers Jennifer a car for $2000 down and $300 per month for 5 years. Jason wants to buy the same car but wants to pay cash. How much must Jason pay if the interest rate is 9.4%? |
| 7) The Gomez family bought a house for $450,000. They paid 20% down and amortized the rest at 5.2% over a 30-year period. Find their monthly payment. | 8) Mr. and Mrs. Wong purchased their new house for $350,000. They made a down payment of 15%, and amortized the rest over 30 years. If the interest rate is 5.8%, find their monthly payment. |
| 9) A firm needs a piece of machinery that has a useful life of 5 years. It has an option of leasing it for $10,000 a year, or buying it for $40,000 cash. If the interest rate is 10%, which choice is better? | 10) Jackie wants to buy a $19,000 car, but she can afford to pay only $300 per month for 5 years. If the interest rate is 6%, how much does she need to put down? |
| 11) Vijay's tuition at college for the next year is $32,000. His parents have decided to pay the tuition by making nine monthly payments. If the interest rate is 6%, what is the monthly payment? | 12) Glen borrowed $10,000 for his college education at 8% compounded quarterly. Three years later, after graduating and finding a job, he decided to start paying off his loan. If the loan is amortized over five years at 9%, find his monthly payment for the next five years. |