1. [10 points] Jerry will make deposits of 50 at the end of each month for 10 years.

At
the end of 15 years, Jerry will use the fund to make annual payments of Y at the beginning
of each year for 4 years, after which the fund is exhausted. The nominal interest rate is 7%
payable semiannually. Determine Y .

M=7% .

Monty
rate is
effective
1+246+-1=0.005.75004

T
j=(

2.5
-2.5
effective annual rate is -

i=H¥5 1=0.071225 .

his Yiia 4
-

Sosa
=
;

⇒
4=3355.23
1

2
 2. [10 points] A 25 year loan of 800,000 is to be repaid with payments to the lender of
800 at the end of each month and deposits of X at the end of each month into a sinking
fund. The sinking fund annual e↵ective interest rate is 3%. Calculate X.

3%
F- .

monthly rate
effective

-4
-5
j= 4+3%5-1=0.0024667

X Son ; fooooo
-

⇒
11=1803.85 - I

3
3. [10 points] Below is part of a mortgage amortization schedule.

Interest payment Principal payment

1200 300

-
frog
1182 318

Determine the last payment of the mortgage if the interest rate remains the same.

34
1

it ;
-
=

⇒
i=b% .

1st
the principal after the pmt

"py÷=
is
19700
1
-

R
-150044+6%77-2=941.57
.
lwopsoo
'
boo = .
-
1

19700=1500 AM 6% -

3
⇒ n .
-26.62 1

drop pmt 9700 #

1
-
.

4
 4. [10 points] How much must you deposit at the end of each year for 5 years to fund a
perpetuity of $3000 per year with the first payment due 6 years after the last deposit. The
e↵ective annual interest rate is 6% for the first 5 years and thereafter the nominal interest
rate is 12% compounded monthly.

in
't it
After
5yks ,
z
annual rate /
effective
i. ( t.IS 'T .

-12 .

683%

the value of the

perpetuity at Time 10

÷ 3000=23654 64 3
S⇒o%4tD5=
-
=
.

deposit X .

23654
-

4
×
.

6 ¢

⇒ X= 2309.82 -

5
 5. [10 points] Alice has $100,000 in her retirement account earning a nominal discount
rate of 5% convertible semi-annually. If she wishes to withdraw $15,000 per year, payable
continuously, how long will the fund last?

'=5%
"
d

i. "jof
4- .

:/ z
,

-2=5.193951
J=lnUti ) -0.05063562

-
5
loooootlboofam
=15oootlfitn⇒n-
8.133 .
-

6
 6. [10 points] Tom is repaying a loan at a nominal interest rate of 12% convertible
quarterly with monthly payments of $2500 over 5 years. Due to temporary unemployment,
Tom missed making the 13th through the 17th payments inclusive. Determine the value of
the revised monthly payments needed starting in the 18th month if the loan is still to be
repaid at the same interest rate by the end of the original 5 years.
)
jet 12%
|

-
=
.

/
ateitire monthly rate j is

12*3+-1=0.0099463
j=(it .

B without missing pmts

Aaj
27500
,

87198.78T
= =

pmts at 17
time
FV of the
5 missing

557=12750
2500
-
=

87198.78+12750
11=2865.54
new pmt X .

-
4
=X
Aaj
⇒ 1

7
 7. [10 points] Bart buys a 28-year bond with a par value of 1200 and annual coupons.
The bond is redeemable at par. Bart pays 1968 for the bond, assuming an annual e↵ective
yield rate of i. The coupon rate on the bond is twice the yield rate. At the end of 7 years,
Bart sells the bond for P , which produces the same annual e↵ective yield rate of i to the
new buyer. Calculate P .
3
/

528=12002-1
1968=1204 D. Aa ;
trout ;

t?t÷ + poo v
28

3=12
28
⇒ 1968=2400 ( to
28
) t ) wov -
1

28
⇒ v =
0.36 .

, -

28*3=0.464758
"
⇒ V =
V

" -

P =
1200 (4) Aa ; + hoov

)t¥
"
oolzi + noon -

"
=
24W ( 1- v
"
) -112mV

=
1842.29 .

8
 8. [10 points] Jason and Margaret each take out a 18-years loan of L. Jason repays his
loan using the amortization method, at an annual e↵ective interest rate of i. He makes an
annual payment of 500 at the end of each year. Margaret repays her loan using the sinking
fund method. She pays interest annually, also at an annual e↵ective interest rate of i. In
addition, Margaret makes level annual deposits at the end of each year for 18 years into
a sinking fund. The annual e↵ective rate on the sinking fund is 5%, and she pays o↵ the
loan after 18 years. Margaret’s total payment each year is equal to 12% of the original loan
amount. Calculate L.

-: -
- 2
Jaso :

L= too am ;

Margaret :

SF deposit Y .

YSM5% =L 2

I Lt Y =
12% L -

2
/
⇒ iLtg÷%=l2%L
⇒ ; =
8.445% .
- 1

L =
500AM 's -

=
4544.61

9
 9. [10 points] Bryan buys a 2n-year 1000 par value bond with 8% annual coupons at a
price of P . The price assumes an annual e↵ective yield of 5%. At the end of n years, the
n
book value of the bond, X, is 120 greater than the purchase price, P . Assume v12% < 0.5.

th
Calculate X. tower ⇐*
"

tlooov Z
P= too 8% An
.
-
.

X too 8% an tlooovn - 2

XHW
.

=
.
.

P .
- .

fotjeynntlooov
"
⇒

=
fo .

'jY÷ throw .

That is vk.vn TO 2=0

: -

2763932
"

V =

⇒
.

11=1434.16
-

⇒ .
|

10
 the 2nd
yr
Tom
10. [10 points] A $30,000 bank loan is to be repaid by 30 annual installments of $1000
payable on the first day of each year beginning immediately.
- In addition, interest at 4% is
payable on the last day of each year on the principal outstanding at the beginning of the
year. Under this repayment method, what is the actual loan amount with an e↵ective annual
rate 5%?
Hint: the annual installments of 1000 are paid towards the principal.

The 1st boo pmt

The OLB after

290004%
The at The
is 29000 .
int .

port
end of 1st yr Is

1200

30000.4%-1
=
.

The 2nd int pmt is

I
.

-
=
11 to
.

Thus the iht .

Pmts are

1200 11 to
lpfo de
,
,
,
. .

,
a
creasy
sequence .
In total 30
pmts .
-
1

The actual loan am out Is

$a) 3075% 6
-

1000 AM 5%+40
= 15372 45+4040-9,3754
:

=
27074.49 .
-
1

11
040
part SF gttimekis
.

The net int .

in

Ii spa I
-3
'

ix -

=ix ( i
-

srg⇒

=
ix ( saga )

t.in#y*tiEjt4
=ixl¥PEHi÷
The net int .

pmt in

k is

amortization
at time
i ¥ Ankh
'

In i Bk ,
=

1 turned =ix
1