Mortgage

1. a) A family wants to buy a $200,000 home. They can make a $40,000 down payment.

The bank charges 4.8% annual interest compounded monthly. If they pay off the loan by

making equal monthly payments for 30 years, what will be their monthly payment?

b) If the compounding and payments were quarterly, what would their quarterly payment be?

Sinking Fund

2. The family now wants to set up a college fund for their newborn. They want the child

to be able to withdraw $750/month for 4 years beginning 18 years from now. How much

should they deposit each month for the next 18 years beginning now? Assume all the

money still in the fund earns annual interest of 3.6% compounded monthly.

i) Determine the amount they should have in the fund 18 years from now.

ii) Determine what payments will accumulate this amount over the 18 years.