Finance portion of Final Exam Review with key Math 166 Sp’07

1. A family is buying a $150,000 home. They will put $30,000 down and finance the rest through monthly installments for 30 years at annual interest rate 5.5% compounded monthly.

a) What is their monthly payment?

b) How much interest will they pay over the whole 30 years?

c) How much do they still owe after 10 years?

d) How much of the 121^st payment is interest?

e) If they can afford to pay $800 per month and still put $30,000 down, what price home can they buy?

2. $20,000 is invested at annual interest rate 6.2%. Find the accumulated amount after 10 years if

a) interest is simple.

b) interest is compounded quarterly.

c) interest is compounded continuously.

3. Compare the effective rates and determine which pays the most interest.

a) 6% compounded quarterly and 5.97% compounded continuously.

b) 6% compounded monthly and 5.98% compounded continuously.

4. A person sets up an account so he will be able to withdraw $1500 per month for 10 years.

a) How much should he deposit if interest is 6% compounded monthly?

b) How much should he deposit if interest is 6% compounded monthly but he will begin making the withdrawals 20 years from now?

Key:

1. a) $681.35 b) $125,286.00 c) $99,049.19 d) $453.98 e) $170,897.41

2. a) $32,400 b) $37,002.16 c) $37,178.56

3. a) 5.97% compounded continuously b) 6% compounded monthly

4. a) 135,110.18 b) $40,816.26