1) You have found three investment options for a one-year deposit: 10% APR compounded monthly, 11% APR compounded annually, and 9% APR compounded daily. Calculate the EAR for each investment option. (Assume there are 365 days in the year)
2) You just bought a house and got a mortgage of $490,000. The mortgage has a term of 30 years with monthly installments and an APR of 4.88%. How much will you pay in interest and how much will you pay in principal during the first year? How much will he pay in interest and how much will he pay in principal during the 20th year? (ie: between 19 and 20 years from now)
3) You need a new car and the dealer has offered you a price of $20,000 with the following payment options: (a) pay cash and get $2,000 back, or (b) pay a $5,000 down payment and finance the rest with 0% APR charge over 30 months. But having quit your job and started an MBA program, you are in debt and expect to be in debt for at least the next 2 1/2 years. You plan to use credit cards to pay your expenses; luckily you have one with a low (fixed) rate of 14.67% APR. Which payment option is best for you? Is your monthly discount rate ___%?
4) The mortgage on your house is 5 years old. It required monthly payments of $1,450, had an original term of 30 years, and had an interest rate of 8% APR. You decide to refinance. The new mortgage had a 30-year term, requires monthly payments, and has an interest rate of 5.625% APR.
a) What monthly payments will be required with the new loan?
b) If you still want to pay the mortgage in 25 years, what monthly payment must you make after refinancing?
c) Suppose you are willing to continue making monthly payments of $1,450. How long will it take to pay off the mortgage after refinancing?
d) Suppose that you are willing to continue making monthly payments of $1,450 and you want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the refinance?
5) Fred bought a boat and is bragging about the low interest rate of 6.9% (APR, compounded monthly) that he got from the dealer. The rate is even lower than the rate he could have gotten on his home equity loan (7.8% APR, compounded monthly). But if your tax rate is 28% and the interest on the home equity loan is tax deductible, which loan is really cheaper? ? The after-tax cost of the home equity loan is___%
6) Your friend has a tax rate of 40% and has the following debts: car loan with an outstanding balance of $5,000 and an APR of 4.81% (monthly compounding), credit cars with an outstanding balance of $10,000 and an APR of 14.99% compounded), Savings with a balance of $30,000 paying 5.43% EAR, Money Market Savings with a balance of $100,000 paying 5.28% APR (compounded daily), and a tax-deductible home equity loan with an outstanding balance of $25,000 and 5.07% APR (compounded monthly)? Which savings account pays a higher after-tax interest rate? Regular savings pay ___% Money Market pay ___%