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- The Ampersand Corporation borrowed $2,500,000 from a group of private investors in order to fi nance an expansion
of its manufacturing facilities. The investors will not receive any payments during the course of the loan, but under
terms of the loan, the company must make quarterly payments into a sinking fund for 10 years.
a) If the loan interest rate is 12% compounded quarterly, how much will Ampersand have to accumulate in order to
pay off its creditors at the end of 10 years?
b) If the sinking fund earns 6.6% interest, how much will each of Ampersand’s quarterly payments have to be? - Internet vendor EPottingSoil.com borrowed $1,000,000 from a group of investors for 5 years at a 9.74% effective
rate. The company will not make any payments to these investors until the maturity date of the note. However, loan
covenants require the company to establish a sinking fund for the purpose of accumulating the maturity value, into
which PottingSoil.com must make equal deposits at the end of each quarter. If the sinking fund earns 4.5% interest,
how much must each deposit be? - Chris pays $15 each week into a Christmas Club account at his credit union. The account pays 3.7% interest. How
much will he have in the account at the end of 1 year? - Ubiquitous Advertising Associates fi nanced its new offi ce building with a 10-year loan on which payments of $3,142.00
are due at the beginning of each month. The interest rate of the loan is 8.1%. How much did the company borrow?
How much total interest will it pay? - Seven years ago, Taneisha took out a 30-year mortgage at 7.83%. Her monthly payments are $603.80. She has made
all of her payments as scheduled to date.
a) How much did she originally borrow?
b) How much does she owe today?
c) Suppose that Taneisha decided to refi nance her mortgage today with a new 30-year loan at 7.5%. What would
her new monthly payment be? How does the new payment compare to the old one? Would she save money by
doing this? - Steve bought a house for $137,000 with a down payment of $16,000. He fi nanced it with a 30-year mortgage at
7.83%. How much total interest will he pay over the life of the loan? Suppose that he instead took out a 15-year loan
at the same interest rate. How much higher would his monthly payment be? How much total interest would he pay over
the life of the 15-year loan? - Julia deposits $175 at the beginning of each quarter into an account earning 6.7% for 30 years. How much money will
she have at the end of those 30 years? How much total interest will she earn? - Rhonda has just graduated from Wassamatta U. and has student loans totaling $12,375. She must now start making
payments monthly. Her loans’ interest rate is 8.88%, and she will pay the loan off over 18 years. How much will her
monthly payments be? Of her fi rst payment, how much will go for interest and how much for principal? - Mark is saving up for a tuition deposit for veterinary school. He will need $4,500 in 3 years, and is trying to build up this
amount by making monthly deposits into an account earning 3.93%. How much should each monthly deposit be?
Chapter 4 Exercises 205