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The following exercises are a mixture of problems primarily from the topics covered in Chapter 4. One of the objectives of
these exercises is to be able to correctly identify which topics and tools are needed for each problem. While the emphasis is
on material covered in Chapter 4, some problems covering material from Chapters 1 to 3 may also be included. All of the
material covered in this chapter is “fair game,” except for optional topics, which are not included in these exercises.
- Zeno bought his house with a 30-year mortgage at 9% interest. His monthly payment for the loan is $813.25. How
much did he borrow to buy his house? If he made a down payment of $8,927.77, how much did he pay for the house? - George is participating in his company’s 401(k) plan by contributing $25 every week (at the end of the week) to his
account. He expects his investments to earn 9%. How much will he have in his account after 30 years? How much total
interest will George earn? - A school district issues a bond to provide for a new addition to the local high school. The terms of the bond call for the
district to repay a total of $5,243,816 at the end of 5 years, and also require that the district establish a sinking fund
to accumulate the amount to be repaid. The sinking fund will be funded by deposits made at the beginning of each
quarter into an account that pays 5.6% interest. How much will the district have to contribute each quarter? - Lex just won his lawsuit against the Amber Rainbow Restaurants Corp. for injuries sustained when he poured a carafe
of hot coffee on himself at one of their restaurants. The court awarded him $5,000,000 to be paid as a structured
settlement with payments at the beginning of each year for the next 10 years. The $5,000,000 is the total of all the
payments, not the present value. A private investor offers to purchase these payments with a lump sum payment today,
calculated at an interest rate of 14.6%. How much would he receive if he accepted this offer? - Hiroshi wants to retire in 45 years with $2,000,000. He plans to achieve his goal by making annual deposits at the end
of each year into an IRA account, on which he believes he will earn 11.2%. How much does he need to deposit each
year in order to achieve his goal? - Marat bought a car, which he fi nanced with a 5-year loan at 11.3% interest. He made a down payment of $2,000 and
his monthly payment is $317.98. How much did he pay for the car? - MostlyXAct Testing Labs borrowed $2,500,000 to expand its facilities by taking out a loan at 8.4%. The lender requires the
labs to pay off the loan by making payments at the end of each quarter for 7 years. How much will each payment be? - Vern wants to buy a new car that costs $14,362.50. His credit union will loan him the money with a 4-year loan at 7.8%
interest. How much will his monthly payments be? How much will his total payments be? How much total interest will he pay? - Tom’s property taxes are $3,300 per year. The bank that holds his mortgage requires him to make monthly deposits
into a sinking fund at the beginning of each month in order to accumulate the total for his taxes at the end of the year.
If the account earns 4.8% interest, how much should each monthly payment be?
CHAPTER 4
EXERCISES