Question

1.Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $13,500 balance from your current credit card,which charges an annual rate of 21.3 percent, to a new credit card charging a rate of 11.9 percent.

  

How much faster could you pay the loan off by making your planned monthly payments of $300 with the new card? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Number of months

What if there was a 2 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Number of months

2.Suppose you are going to receive $12,600 per year for four years. The appropriate interest rate is 7.5 percent.

  

a-1	What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

Present value

$

  

a-2	What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

Present value

$

  

b-1	Suppose you plan to invest the payments for four years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

Future value

Answer 1

1. How much faster could you pay the loan off by making your planned monthly payments of $300 with the new card? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
=NPER(21.3%/12,-300,13500)-NPER(11.9%/12,-300,13500)=31.22489001 months

What if there was a 2 percent fee charged on any balances transferred? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
=NPER(21.3%/12,-300,13500)-NPER(11.9%/12,-300,13500*(1+3%))=28.74479687 months

2.

a-1  
What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
=12600/7.5%*(1-1/1.075^4)
=42201.511
  
a-2  
What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
=42201.511*(1+7.5%)
=45366.62433

b-1  
Suppose you plan to invest the payments for four years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
=42201.511*1.075^4
=56358.81563