Posted: November 3rd, 2015

Finance

Finance

1.  person deposits $3600 per year into a retirement account that earns 6%.

a.  What is the value of the account at the end of 20 years?

b.  How much additional money will be in the account if the individual defers retirement until 30 years and continues the contributions?

c.  How much additional money will be in the account in the individual discontinues the contributions after 10 years but still does not retire until the end of the 20 years?

2.   You are offered two jobs.  One initially pays $25,000 annually and your salary will grow annually at 10%.  The other position pays $22,000 annually but will grow at 12%.  After 10 years, which job pays the higher salary?

3.   You invest $2,500 in a stock and $2,500 in a corporate bond.  If you earn 7% on the stock and

4% on the bond and hold each security for 10 years…

a.    What is the projected value of each investment?

b. If you continue to hold each security and earn returns for 30 years, what is the projected value of each investment?

c.       How much more will the stock generate than the bond over the entire time period?  Provide your analysis as to what these values represent and tell you about long term growth.

4.  A $1,000 bond has an $85 coupon paid semi-annually.  The bond will mature in 8 years.

a.  If similar bonds currently yield 6% annual interest, what is the price of the bond today?

b. b. What is the current yield of this bond?

5.   A person buys a house for $250,000 with a $50,000 down payment.  They are given a 4% mortgage with annual payments for 30 years.

a.      How much must they pay each year?

b.     Instead they only make payments for 15 years, how much must they pay each year?

c.      Explain the difference between the payments in (a) and (b).  Why are they different?

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