Trade Calculations II Assignment 6: Annuities, Interest and Loans

Name: ________________________________________________ ______ / 23
1. Calculate the Effective Annual Rate (EAR) for the following: (2 marks each)
a. APR = 7.0% and interest is calculated quarterly
b. APR = 12.5% and interest is calculated monthly
c. APR = 8.25% and interest is calculated semi-annually.
2. If I deposit $15,500 into term deposit earning 7.2% per year compounded semi-annually, what is the future value in
3.
a) 1 year? (2 marks)
5 years? (2 marks)
c) 10 years? (2 marks)
Trade Calculations II Assignment 6: Annuities, Interest and Loans


4. I would like to buy a home in 8 years and I would like to have a down payment of $40,000.

a) How much (lump sum) do I need to put into a term deposit now invested at 5.5% per year compounded monthly to achieve this? (3 marks)
How much would I need to deposit monthly, in a savings account which earns 5.5% per year compounded monthly to achieve this? (3 marks)
5. If I deposit $1,400 at the end of every 6 months into an account earning 10% per year, compounded semi-annually, what is the future value in 5 years? ( 2 marks)
Trade Calculations II Assignment 6: Annuities, Interest and Loans


6. I am planning an education fund for my daughter who will be eligible for college in 15 years. If I expect post-secondary education to cost approximately $58,000, how much do I need to put into the education fund annually if I estimate an 8 % return per year, compounded annually. ( 3 marks)

BONUS: What is the accumulated value at the end of year 10 for the following situation?
I invest $2,500 at the end of each year for 5 years starting now and in 5 years’ time when my income goes up I can invest $4,000 at the end of each year for 5 years. Use an interest rate of 8% per year for all investments. (2 marks)

bruh you'd have to pay me 100fg just to read that wall of text

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I wouldn't let you do it for free, but if someone with some class came along and asked for more i would oblige.

i haters

1. Calculate the Effective Annual Rate (EAR) for the following: (2 marks each)
a. APR = 7.0% and interest is calculated quarterly -> EAR = (1+0.07/4)^4 - 1 = 7.1859%
b. APR = 12.5% and interest is calculated monthly -> EAR = (1+0.125/12)^12 - 1 = 13.2416%
c. APR = 8.25% and interest is calculated semi-annually. -> EAR = (1+0.0825/2)^2 -1 = 8.4202%


2. If I deposit $15,500 into term deposit earning 7.2% per year compounded semi-annually, what is the future value in
3.
a) 1 year? (2 marks) -> 15500*(1+0.072/2)^2 = 16636.1 $
5 years? (2 marks) -> 15500*((1+0.072/2)^2)^5 = 22076.5 $
c) 10 years? (2 marks) -> 15500*((1+0.072/2)^2)^10 = 31443.2 $

4. I would like to buy a home in 8 years and I would like to have a down payment of $40,000.

a) How much (lump sum) do I need to put into a term deposit now invested at 5.5% per year compounded monthly to achieve this? (3 marks)
Let X be that sum :
EAR = (1+0.055/12)^12 - 1 = 0.056408%

Now, I'm not american, I assume the down payment is 20% of the value
So 80% remains to be paid = 160,000$

You need to pay 160,000$ in 8 years :
160,000 = X * (1.056408)^8 -> X = 160000/(1.056408)^8 = $103,149

Edit : you can pm me if you still need the rest, but it won't be before tomorrow

This post was edited by Witzard on Aug 7 2015 01:14pm

BONUS: What is the accumulated value at the end of year 10 for the following situation?
I invest $2,500 at the end of each year for 5 years starting now and in 5 years’ time when my income goes up I can invest $4,000 at the end of each year for 5 years. Use an interest rate of 8% per year for all investments. (2 marks)

After 5 years you have :

2500*(1+1.08(1+1.08(1+1.08(1+1.08(1+1.08))))) = 18067.7 = a

Now lets do it again for 5 more years with a 4k deposit :
((((((1.08a+4000)1.08+4000)1.08+4000)1.08+4000)1.08+4000 = 74,699.3$

I really hope OP gave you more than 100 fg

If it's easy, why can't you do it?

opportunity cost.