These problems should be solved with a financial calculator, but other methods are acceptable.
- You just invested $5,000 in a 48-month certificate of deposit (CD) at your local bank. The CD pays 1.5% interest per year compounded monthly. What amount will your CD be worth when it matures?
- I am asking a bank to lend me part of the money I need to make a down payment on a duplex I am purchasing. Based on my income projections for the duplex, I can easily afford to pay $700 per month for the next four years. How much will the bank lend me, assuming it requires a 6% annual return on this four-year loan?
- You have just entered into a contract to purchase a home. After shopping around, you decide on a $180,000 mortgage from a lender offering a 30-year fixed rate mortgage with monthly payments at an annual interest rate of 7%. What is the monthly loan payment?
- In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-year loan by a mortgage broker for no money down, interest only for the first three years at 3%, then automatically converting to an amortizing loan at 2 points above the prime rate (the prime rate is now 5%). What was their initial monthly payment, and what did it become after the reset?
- What does the loan adjustment in problem 4 tell you about the financial crisis in the housing market in 2009?