Financial Math Answers

I. A family buys a house worth $326,000. They pay $75,000 deposit and take a mortgage for the balance at J12=9% p.a. to be amortized over 30 years with monthly payments.

A. Find the value of the mortgage on their house? (1 mark)
B. Find the value of the monthly payment? (3 marks)
C. Find the loan outstanding after making 20 payments? (4 marks)
D. Find the principal repaid in the 21st payment?

II. Fill out the loan amortization schedule provided in the solution template for the first 5 loan payments. What do you notice about the composition of the payment amount? (6 marks)

Your brother has just invested in a discount bond that offers an annual coupon rate of 9%, with interest paid annually. The face value of the bond is $1,000 and the difference between its yield to maturity and coupon rate is 4%. The bond matures in 8 years. What is the bond’s price?

ebhat is going on vacation in exactly 4 months. His options for paying for it are
1. pay $4000.00 up front (today)
2. make 4 payments of $X at the end of each month for the next 4 months.
3. Pay $1000.00 today and pay 3 * $X on the day he leaves (t = 4 months).
a) If X = 1100.00 what monthly compounded interest rate r(12) makes options 1 and 2 equally expensive?
b) Use your answer to a) to find the cost (present value) of option 3).
c) True or False: Option 3 is always cheaper than Option 2 no matter what the interest rate is.

Selima deposits $8000 ( t = 0 years) in an account paying r(2) = 5.00%.At the end of 4 years (t = 4 years) she adds another $5000 to her account and the interest rate changes to r(2) = X%. After another 3 years ( t = 7 years) she adds another $7000 to her account and the interest changes to r(2) = 3.00%. At the end of 11 years, she has $27721.81 in her account.

How much money does she have in her account at t = 4 years just before she makes her deposit?

b) How much money does she have in her account after 7 years, just after she makes her deposit?

c) What is X%?

bill was drawn on 14th June, 2006 at 8 months after date and was discounted on 24th September, 2006 at 5% per annum. If the banker’s gain on the basis of simple interest is Rs 3, calculate the sum for which the bill was drawn.

The true discount on a bill is 3/4 of the banker’s discount. If the rate of interest is 10% (simple), find the time.

A bill of exchange for Rs 750.000 was drawn on 3rd April, 2000 payable at 3 months after date. It was discounted on 24th April, 2000 at 5% per annum. What was the discounted value of the bill?

find the present and future value of 1000 received every month end for 20 years if the interest rate is j12= 12% per annum

John Aitorea was seriously injured an individual in an industrial accident. He used the responsible parties and was awarded a judgement of $2 million dollars. Today, he and his attorney are attending a settlement conference with the defendants. The defendants have made an initial offer of $156,000 per year for 25 years. John plans to counteroffer at $255,000 per year for 25 years. Both the offer and the counteroffer have a present value of $2 million, the amount of judgment. Both assume payment =s at the end of the year
a. What interest rate assumption have the defendants used in their offer?
b. What interest rate assumption have john and his lawyer used in their counteroffer?
c. Suppose john is willing to settle for an annuity that carries an interest assumption of 9%. What annual payment would be acceptable to him?

Explain in a paragraph of about 100-150 words when and why would a bond be sold on a premium or discount? You may use graphs, equations, or other aids to assist your explanation.