Question

In: Finance

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

b

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


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