Chapter 4 Worksheet

Chapter 4 Worksheet

Chapter 4 Worksheet

Y

A = P × (1 + APR )

 A   P

1   Y 

−1

 APR  A = P × 1 +  n  

( n⋅Y )

 APR ( n⋅Y )  − 1  1 +  n    A = PMT ×  APR     n 

A = P × e(APR×Y )

 APR  P×   n  PMT =   APR ( − n⋅Y )  1 − 1 +   n    

*You will be given the above formulas for the exam. You will be required to know all other formulas.

Practice 1: Sheryl spends $9 on Starbuck’s coffee every week and spends $30 on dry cleaning each month. What are Sheryl’s yearly expenses?

Practice 2: Your goal is to create a college fund for your child. Suppose you find a fund that offers an APR of 5%.How much should you deposit monthly to accumulate $85,000 in 15 years?

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Chapter 4 Worksheet Practice 3: Suppose you take out a student loan of $50,000 at a fixed APR of 10% that will be repaid in 20 years. a) What will be your monthly payment?

b) What will be the total amount paid over the life of the loan?

c) Of the total amount, what percentage is paid toward the principal? What percentage is paid for interest?

Practice 4: You deposit $700 in an account that earns simple interest with an annual interest rate of 4%. How much money will you have in the account after five years?

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Chapter 4 Worksheet Practice 5: You invested $2000 in an account with an APR of 5%, compounded monthly. What will your balance be after 15 years?

Practice 6: You have two options for a $200,000 loan. Option 1: a 30-year loan at an APR of 8%. Option 2: a 15-year loan at an APR of 7.5% Compute the monthly payments and total loan costs for each option.

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Chapter 4 Worksheet Practice 7: You could take a 15-week college math course, which requires 10 hours per week of your time and costs $500 per credit-hour in tuition. Or during those hours you could have a job paying $10 per hour. a) What is the net cost of the class compared to working?

b) Given that the average college graduate earns nearly $20,000 per year more than a high school graduate, is paying for college a worthwhile expense?

Practice 8: Compute the APY for an account with an APR of 6% in which you deposit $3000 compounded continuously.

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Chapter 4 Worksheet Practice 9: Find your savings plan balance after 12 months if your account has an APR of 3% and you make monthly payments of $150.

Practice 10: You need to borrow $12,000 to buy a car and you decide that you can afford monthly payments of $250. The bank offers three choices: Option 1: a 3-year loan at a 7% APR Option 2: a 4-year loan at a 7.5% APR Option 3: a 5-year loan at an 8% APR. Which loan best fits your needs? Explain.

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Chapter 4 Worksheet Practice 11: Suzanne deposits $3000 in an account that earns simple interest at an annual interest rate of 2.5%. Derek deposits $3000 in an account that earns compound interest at an annual rate of 2.5%. What are their ending balances after a 5-year period?

Practice 12: You maintain an average balance of $650 on your credit card, which is compounded monthly and carries an 18% annual interest rate. What is your periodic interest rate?

Practice 13: Five years after buying 100 shares of Yahoo! stock for $60 per share, you sell the stock for $9400. Compute the total and annual returns on your investment.

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Chapter 4 Worksheet Practice 14: You borrow $80,000 at an APR of 7%, which you are paying off with monthly payments of $620 for 20 years. a) Identify the loan principal, the annual interest rate, the number of payments per year, the loan term, and the payment amount.

b) How many total payments does the loan require? What is the total amount paid over the full term of the loan?

c) Of the total amount, what percentage is paid toward the principal and what percentage is paid for interest?

Practice 15: You invest $15,000 in an account with an APR of 3.2% compounded annually. What is your balance after 25 years?

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Chapter 4 Worksheet Practice 16: A bank offers an APR of 2.25% compounded quarterly. Calculate the APY for this account.

Practice 17: At age 25, you set up an IRA (individual retirement account) with an APR of 5%. At the end of each month, you deposit $75 in the account. a) How much will the IRA contain when you retire at age 65?

b) Compare that amount to the total deposits made over that time period. How much interest have you made?

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Chapter 4 Worksheet Practice 18: Suppose that on January 1st, you make a New Year’s Resolution to pay off your credit card debt. You have $5000 on a credit card with an APR of 21% and you want to pay the balance off in 3 years. To assist with this, assume you cut up your card and do not have any additional purchases after January 1st. a) What are your monthly payments?

b) When the card is paid off, how much will you have paid in interest since January 1?

c) What percentage of your total payment (from part b) is interest?

Practice 19: Suppose you invest $25,000 in an account compounded quarterly for 30 years. What APR is needed to have an ending balance of $75,472.89?

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Chapter 4 Worksheet Practice 20: Suppose you want to buy a house for $175,000. You are preapproved for a 30-year loan at an APR of 3.5%, but there is a 10% down payment required and the closing costs are $1000 plus 2 points. a) What is the cost of the down payment?

b) What are your closing costs?

c) What are your monthly payments?

d) What is the total cost of the house (including down payment, closing costs, and all monthly payments)?

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