Finance Homework: Financial Calculations and Loan Analysis Solutions

This document presents solutions to a finance homework assignment. The assignment covers a range of financial concepts, including calculating the doubling time of an investment, determining monthly payments for a savings goal, and calculating the present value of a stream of payments. T...Read More

Q1
A deposit placed in an interest-earning account earning 8% a year will
double in value roughly in ___ years.
Group of answer choices
6
8
9
72
It will never double in value
Question 2
At the end of 8 years, your friend wants to have $50,000 saved for a down
payment on a house. He expects to earn 8%—compounded monthly—on his
investments over the next 8 years. How much would your friend have to put
in his investment account each month to reach his goal?
Group of answer choices
$188
$374
$392
$521
Question 3
Your friend just won the lottery. He has a choice of receiving $50,000 a year
for the next 20 years or a lump sum today. The lottery uses a 15% discount
rate. What would be the lump sum your friend would receive?
Group of answer choices
$312,967
$316,426
$500,000
$1,000,000
Question 4
If you deposit $1,000 in an account that earns 5% per year, compounded
annually, you will have $1,276 at the end of 5 years. What would be the
balance in the account at the end of 5 years if interest compounds monthly?
Group of answer choices
$784
$1,000
$1,276
$1,283
Question 5

A borrower has a 30-year mortgage loan for $200,000 with an interest rate of
6% and monthly payments. If she wants to pay off the loan after 8 years,
what would be the outstanding balance on the loan?
Group of answer choices
$84,886
$91,246
$146,667
$175,545
Not enough information
Question 6
A borrower takes out a 30-year mortgage loan for $100,000 with an interest
rate of 6% plus 4 points. What is the effective annual interest rate on the
loan if the loan is carried for all 30 years?
Group of answer choices
5.6%
6.0%
6.4%
6.6%
Question 7
Assuming all APRs equal, the effective interest rate on a loan is highest
when:
Group of answer choices:
The loan has no points and a 30 year maturity and is prepaid in five years
The loan has no points and is prepaid at maturity
Points are charged and the loan is paid off at maturity in 30 years
Points are charged and the loan has a 30 year maturity but prepaid in five
years
Question 8
One of the most popular amortizing mortgages today is the constant
payment mortgage. Which of the following characterizes the components of
the CPM payment over the life of the loan?
Group of answer choices
A
B
C
D
Question 9

A borrower takes out a 30-year mortgage loan for $250,000 with an interest
rate of 5% and monthly payments. What portion of the first month’s payment
would be applied to interest?
Group of answer choices:
$694
$1,042
$1,342
$1,355
Not enough information
Question 10
The future value of $1,000 compounded annually for 8 years at 12% may be
calculated with the following formula:
FV = $1,000 * (1 + 12%)8
If the same $1,000 was compounded quarterly, what formula would you use
to calculate the FV?
Group of answer choices:
FV = $1,000 * (1 + 3%)8
FV = $1,000 * (1 + 12%)32
FV = $1,000 * (1 + 3%)32
FV = $1,000 * (1 + 12%)2