For all calculations, state the exact source where you got the information (if i

Question

For all calculations, state the exact source where you got the information (if it is a bank rate, for example, what bank? What web address?) For calculations, show your inputs, in other words, what are PMT, I, FV, PV and N?

1. Suppose you open a bank account at Bank of America. Go to their web site and look up the pitiful rate of interest you will receive on this account. Suppose you save $100 a month for 5 years. How much will you have at the end of 5 years?

2. What is your age today? At the end of each year, starting today, you put $3,000 in an investment account earning 8% per year and you continue making $3,000 contributions every year until you reach age 70. How much will you have in your retirement account? How much will you have in your account if you start contribution one year from now, instead of today?

3. Go to the Visa or Mastercard web site. If you got a credit card, what would your annual rate (APR) be? Now, suppose (but don’t actually do this) that you buy that lavish home entertainment system that you always wanted for $5,000, and you charge this amount on your new credit card. Now, assume you pay this back by making $100 payments per month.  

a. Develop an amortization table assuming $100 payments for the first 12 months’ payment. To get credit, you must show all of your work. How much of the $100 is interest and how much is being used to pay down your debt during the first 12 months? Note that you do not need to do these calculations by had – there are many websites that will calculate amortization tables and excel has an add in feature to calculate this.

b. At a rate of $100 per month, how many months will it take to repay the entire $5,000?

Explanation / Answer

Answer of this problem is:

Balance in the account as on today = $300

Savings per month = $100 which earns a interest of .01% per annum for 60 months.

So, Amount that would be accumulated at the end of 5 years can be calculated by using =FV function on excel

=fv(rate%, nper, pmt, (fv), )

or use this Future value formula:

FV = (Investment/Interest rate)*( (1+rate%)n - 1)

From MS excel we can calculate Future value of $100 monthly investment as:

Future Value= $6001.48

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