Question

An individual started to contribute $3,000 on his 30th birthday into an IRA (individual retirement account) that earned him 8% annual return. On his 65th birthday, he retired after making 35 annual contributions, the last one when he celebrated his 64th birthday. How much has he amassed in his IRA on his 65th birthday? Ans.: $___________.

1. 558306

2. 516950

3. 558360

4. 516.590

B. An individual started to contribute $3,000 on his 30th birthday into an IRA (individual retirement account) that earned him 8% annual return. On his 65th birthday, he retired after making 35 annual contributions, the last one when he celebrated his 64th birthday. If he now wants to buy himself an 25-year annuity that pays end-of-month and earns 6% annual rate of return, how much will he receive each month? Ans.: _________.

• A. 3,579.18
• B. 3,597.18
• C. 3,330.72
• D. 3,303.72

C. An individual started to contribute $3,000 on his 30th birthday into an IRA (individual retirement account) that earned him 8% annual return. On his 65th birthday, he retired after making 35 annual contributions, the last one when he celebrated his 64th birthday. If he now wants to buy himself an 25-year annuity that pays end-of-month and earns 6% annual rate of return, leaves $100,000 as lump sum for his last payment, how much will he receive each month?

• A. 3,168.42
• B. 3,425.87
• C. 3,452.87
• D. 3,186.42

D. You took a 30-year half-million-dollar mortgage at 3% per year. What is your monthly payment? Ans.: _____.

• A. 2,152.80
• B. 2,125.80
• C. 2,180.20
• D. 2,108.02

E. You took a 30-year half-million-dollar mortgage at 3% per year. Midway (i.e., after you've paid the 180th monthly payment), how much equity have your accrued? $__________.

• A. 305,253
• B. 194.747
• C. 201,175
• D. 250,000

F. You took a 30-year half-million-dollar mortgage at 3% per year. What percent of your last payment goes to reduce principal?

• A. 99.75
• B. 92.75
• C. 95.75
• D. 97.75

Answer 1

A]

Value of IRA on 65th birthday is calculated using FV function in Excel :

rate = 8%

nper = 35

pmt = -3000 (This is entered with a negative sign as it is a cash outflow)

pv = 0 (Beginning value of account is zero)

type = 1 (Each payment is made at beginning of year, hence it is an annuity due)

FV is calculated to be $558,306

B]

Monthly withdrawal is calculated using PMT function in Excel :

rate = 6%/12 (converting annual rate into monthly rate)

nper = 25*12 (25 years with 12 withdrawals each year)

pv = 558306 (value of IRA on 65th birthday)

PMT is calculated to be $3,597.18

C]

Monthly withdrawal is calculated using PMT function in Excel :

rate = 6%/12 (converting annual rate into monthly rate)

nper = 25*12 (25 years with 12 withdrawals each year)

pv = 558306 (value of IRA on 65th birthday)

fv = -100000 (Remaining amount required at end of period)

PMT is calculated to be $3,452.87

D]

Monthly loan payment is calculated using PMT function in Excel :

rate = 3% / 12   (converting annual rate into monthly rate)

nper = 30*12 (30 year loan with 12 monthly payments each year)

pv = 500000 (loan amount)

PMT is calculated to be $2,108.02