Problem 12. (a) (5 marks) Cersei wants to set up a college fund for her son...

Problem 12.

(a) Cersei wants to set up a college fund for her son Tommen. Investments deposited at the Iron Bank of Braavos earn 8% interest per year, compounded quarterly. If Cersei invests $7000 with the Iron Bank of Braavos, how long will it take her investment to be worth $126 000?

(b) Cersei also take out a $212 000 mortgage to buy a home in King’s Landing, amortizing it over 30 years at 5.5%, compounded monthly.

(a) What are her monthly payments?

(b) What is the remaining principal after 18 years?

Solutions

Expert Solution

First:

Calculator
Inputs:
PV	(7,000.00)
PMT	-
FV	126,000.00
Rate	8.00000%

Output:
Number of payments	37.56

It takes 37.56 years

Second part:

Payment each period
Calculator
Inputs:
FV	-
PV	212,000.00
Rate (I/Y) per period	0.458%
Term N payments	360

Output:
PMT	($1,203.71)

Payment is 1,203.71

Balance is:


Calculator
Inputs:
PV	212,000.00
PMT	($1,203.71)
Rate (I/Y)	0.458%
Term N	216.00

Output:
FV	($126,683.64)

Balance after 18 years is 126,683.64

jeff jeffy answered 1 year ago

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