You are buying a house and need to borrow $150,000 (mortgage) from the
bank to pay for it. The terms of the mortgage are as follows: 30 years,
annual payments (with the first one occurring one year from today), an
interest rate of 5% per year, nothing owed (no balloon) at the end. What
is the annual payment that the bank expects you to pay them i.e. what
payment amortizes the loan)?
3) You win the lottery and are told you won
$20 million. You actually won $1 million every year for the next 20
years (first payment 1 year from today).
a) If your required rate of
return is 10%, how much would you accept today in exchange for those 20
b) If the first payment were to be made today, what would you
accept today in exchange for all 20 payments? (again assume a 10%
4) Planning for your retirement, you decide you need to
have $3 million, 30 years from today. You plan to make equal yearly
payments beginning one year from today into a retirement account that
will earn 14% per year. The last payment is made 30 years from today.
What is the payment size?
b) What will be the payment if you start
making payments 12 years from today?