Question

What is the annual rate of return on an investment if you lend $30,000 and are repaid $40,000 five years later? (Round final answer to 2 decimal places. Omit the "%" sign in your response.)

Suppose you currently have $100 and plan to purchase a 2-year certificate of deposit (CD) that pays 5% interest, compounded semi-annually. How much will you have when the CD matures? (Round final answer to 2 decimal places. Omit the "$" sign in your response.)

A 30-year, $150,000 mortgage has a nominal annual rate of 6%. All payments are made at the end of each month. What is the monthly payment on the mortgage? (Round final answer to 2 decimal places. Omit the "$" sign in your response.)

Answer 1

1)

Annual Rate of Return

5.92%

Working:

Future Value

=

Present Value x (1+i)^n

Where,

$       40,000

=

$       30,000

x (1+i)^5

i

Interest rate per period

1.3333

=

(1+i)^5

n

life

1.3333^(1/5)

=

1+i

1.05921854

=

1+i

i

=

0.0592

Thus,

Annual Rate of Return

5.92%

2)

Future Value of CD when it matures

$ 110.38

Working:

Future Value of CD when it matures

=

Investment x (1+i)^n

Where,

=

$                 100

x (1+0.025)^4

i

5%/2

=

0.025

=

$           110.38

n

2*2

=

4

3)

Monthly Payment on Mortgage

$       899.33

Working;

a.

Present value of annuity of 1

=

(1-(1+i)^-n)/i

Where,

=

(1-(1+0.005)^-360)/0.005

i

6%/12

=

0.005

=

166.7916

n

30*12

=

360

b.

Monthly Payment on Mortgage

=

Loan Amount

/

Present value of annuity of 1

=

$ 1,50,000.00

/

166.7916

=

$           899.33