# Economics

Submitted By goostaka
Words 422
Pages 2
Assignment 3

Solve the following problems showing your work:

Q1. If you have a credit card with 14.4% APR a. What is your monthly interest rate and what is your annual effective interest rate?

ia (monthly) = 14.4%/12 = 1.2% ia (annual effective interest rate) = (1 + .144/12)12 – 1= 15.39%

b. If you have an outstanding balance of \$1,800 on that card what would be the balance if you skipped 4 months payments (ignore credit card fees and penalties)

1800(1.012)4= \$1887.97

Q2. What is the future worth of a series of equal monthly payments of \$5,000 if the series extends over a period of six years at 9% interest compounded?

c. Quarterly ia = (1 + .09/4)4 = .0931 F =5000 (((1.0931)6 – 1)/.0931) = \$37,912.07 d. Monthly ia = (1 + .09/12)12 = .0938 F =5000 (((1.0938)6 – 1)/.0938) = \$37,979.10 e. Continuously ia = e(.09/12) – 1= .75% F= 5000 (((1.007528)6 – 1)/.007528) = \$30570.31

Q3. You borrowed \$150,000 with a 30-years payback term and a variable APR that starts at 9% and can be changed every five years

a. What is the initial monthly payment

ia = (1 + .09/12) – 1 = .0075
150000 ((.0075(1.0075)360 )/((1.0075)360 - 1) = \$1206.93

b. If, at the end of the five years, the lender’s interest rate changes to 9.75% APR, what will the new monthly payment be?

ia = (1 + .0975/12) – 1 = .008125
150000 ((.008125(1.008125)300 )/((1.008125)300 - 1) = \$1336.71

Q4. Ryan expects to deposit \$1,000 now, \$3,000 four years from now, and \$1,500 six years from now in an account that is earning 12% per year compounded semiannually through a company-sponsored saving plan. What amount can he withdraw ten years from now?

ia = (1 + .12/2)2 – 1 = 12.36% 1000(1.1236)3 = 1418.52 + 3000 = \$4,418.52 4418.52(1.1236)2 = 5578.28 + 1500 = \$7,078.28...

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