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Problem Set 2

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Algebra
School
The University of Maryland Global Campus
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Homework
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Problem Sets 2
1. ) As part of your retirement planning, you purchase an annuity that pays 3.75% annual
interest compounded quarterly
a. If you make quarterly payments of $500 how much will you have saved in 5
years?
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R = 3.75% = 0.0375
N = 4 (quarterly)
T = 5
PMT = $500
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b. Instead, if you make quarterly payments of $250, how much will you have saved
in 10 years
R = 3.75% = 0.0375
N = 4 (quarterly)
T = 10
PMT = $250
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2.) You plan to purchase a house for $430,000 and you will make a 20% down payment. You are
evaluating two mortgages a 30-year fixed mortgage at 2.975 and a 15-year fixed mortgage at
2.35%. Your goal is to have a monthly payment that fits within your budget. Which mortgage
will give you the lowest monthly payment? What will that payment be? How much less will this
be than the other monthly payment?
Mortgage amount = $430,000*0.8 = $344,000
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Option 1:
T=30
R = 0.02975
N=12
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Option 2:
T=15
R = 0.0235
N=12
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The 30 year mortgage gives the lower monthly payment. It is $823.86 less than the 15 year
loan monthly payment.

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Problem Sets 2 1. ) As part of your retirement planning, you purchase an annuity that pays 3.75% annual interest compounded quarterly a. If you make quarterly payments of $500 how much will you have saved in 5 years? 𝒓 𝒏𝒕 (𝟏 + 𝒏) − 𝟏 ) 𝑭𝑽 = 𝑷𝑴𝑻 ∗ ( 𝒓 𝒏 R = 3.75% = 0.0375 N = 4 (quarterly) T=5 PMT = $500 𝑭𝑽 = 𝟓𝟎𝟎 ∗ ( (𝟏 + 𝟎𝟎𝟑𝟕𝟓 𝟒∗𝟓 𝟒 ) − 𝟏 ) = $𝟏𝟎, 𝟗𝟒𝟐. 𝟕𝟖 𝟎. 𝟎𝟑𝟕𝟓 𝟒 b. Instead, if you make quarterly payments of $250, how much will you have saved in 10 years R = 3.75% = 0.0375 N = 4 (quarterly) T = 10 PMT = $250 𝑭𝑽 = 𝟐𝟓𝟎 ∗ ( (𝟏 + 𝟎𝟎𝟑𝟕𝟓 𝟒∗𝟏𝟎 ) −𝟏 𝟒 ) = $𝟏𝟐, 𝟎𝟔𝟓. 𝟑𝟖 𝟎. 𝟎𝟑𝟕𝟓 𝟒 2.) You plan to purchase a house for $430,000 and you will make a 20% down payment. You are evaluating two mortgages a 30-year fixed mortgage at 2.975 and a 15-year fixed mortgage at 2.35%. Your goal is to have a monthly payment that fits within your budget. Which mortgage will give you the lowest monthly payment? What will that payment be? How much less will this be than the other m ...
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