Question

1. Answer the following finance questions,

a. If you lend $1,000 to a friend for 3 years at an interest rate of 3%, how much will she owe you as balloon payment at the end? This is a balloon loan with all payment at the end of the loan's term. Round to the nearest cent.

b. If you borrow $8,000 for 6 years at an interest rate of 6%, what are the annual payments you'd have to make to pay it off? Round to the nearest cent.​[Hint: This is an amortized loan with annual payments]

c. You are buying a $250,000 house. You will make a 20% down payment and take out a mortgage for the rest. A mortgage lender offers a 3.5% fixed rate loan for 30 years. If you go with this loan, how much will your monthly payments be? Round to the nearest cent. ​[Hint: This is an amortized loan with monthly payments. Since down payment is 20%, the mortgage principal is 80% of the cost of the house]

d. Consider a zero-coupon bond with a $1,000 face value maturing in 3 years. What is the value of this bond if its yield to maturity is 5.0%? Round to the nearest cent.

Answer 1

1.
=1000*1.03^3=1092.727

2.
=8000*6%/(1-1/1.06^6)=1626.90102779916

3.
=250000*80%*(3.5%/12)/(1-1/(1+3.5%/12)^(12*30))=898.08937561765

4.
=1000/(1+5%)^3=863.837598531476