F600 Formula Sheet
F600 Summer 2013
Assignment 1
Show your work, please.
Assignment is due in class:
For Tuesday Daytime and Evening Sections on May 28th, 2013
For Wednesday Daytime Section on May 29th, 2013
I need only one write-up back from each group with the first, last name, and your student ID numbers of students forming the group. To eliminate free riding, please put names of only those students in the group who actually worked and contributed to the group assignment. Those who have not contributed will get a mark of zero. Highlight your answers, please. You can write neatly or type the solution.
Time Value of Money:
1.
Melissa plans to deposit $2,000 per year in her account for each of the next 4 years. After that she expects to deposit $4,000 per year for another 6 years. All deposits are made at the beginning of the year. Interest rates are expected to be 4% for the first 3 years, and 5% thereafter. Interest is compounded annually.
a. What will Melissa’s balance be at the beginning of year 10 before her last deposit is made? b. What will Melissa’s balance be at the end of year 10?
c. How much would Melissa have to deposit as a lump sum today in order to accumulate the same bank balance at the end of year 8?
2.
Bank A offers an 8% nominal rate compounded quarterly on its savings deposits. Bank B also offers an 8% nominal rate but compounds continuously. Compare the two alternatives on the basis of
a. The future value of $5,000 in four years
b. The effective annual interest rate. Is continuous compounding a significant advantage over the more typical quarterly compounding?
3.
You just took out a mortgage from Canadian bank of $500,000 for 25 years at interest rate of 8%. It requires equal payments made every two week (by-weekly).
a.
b.
c.
d.
e.
4.
What is the size of each payment?
After 400 payments have been made, what will be the outstanding principle?
What will be the interest portion of the 400th payment?
What is the
Assignment 1
Show your work, please.
Assignment is due in class:
For Tuesday Daytime and Evening Sections on May 28th, 2013
For Wednesday Daytime Section on May 29th, 2013
I need only one write-up back from each group with the first, last name, and your student ID numbers of students forming the group. To eliminate free riding, please put names of only those students in the group who actually worked and contributed to the group assignment. Those who have not contributed will get a mark of zero. Highlight your answers, please. You can write neatly or type the solution.
Time Value of Money:
1.
Melissa plans to deposit $2,000 per year in her account for each of the next 4 years. After that she expects to deposit $4,000 per year for another 6 years. All deposits are made at the beginning of the year. Interest rates are expected to be 4% for the first 3 years, and 5% thereafter. Interest is compounded annually.
a. What will Melissa’s balance be at the beginning of year 10 before her last deposit is made? b. What will Melissa’s balance be at the end of year 10?
c. How much would Melissa have to deposit as a lump sum today in order to accumulate the same bank balance at the end of year 8?
2.
Bank A offers an 8% nominal rate compounded quarterly on its savings deposits. Bank B also offers an 8% nominal rate but compounds continuously. Compare the two alternatives on the basis of
a. The future value of $5,000 in four years
b. The effective annual interest rate. Is continuous compounding a significant advantage over the more typical quarterly compounding?
3.
You just took out a mortgage from Canadian bank of $500,000 for 25 years at interest rate of 8%. It requires equal payments made every two week (by-weekly).
a.
b.
c.
d.
e.
4.
What is the size of each payment?
After 400 payments have been made, what will be the outstanding principle?
What will be the interest portion of the 400th payment?
What is the