1. An account at a bank pays interest of 0.1% per month - compounded monthly.
What is
(i) the annual percentage rate (APR), on this account?
(ii) If you deposit $1,000 in this account and leave it alone, what will the balance be after 5 years? How long before the balance reaches $1,500?
(iii) If you deposit $1,000 in the account and then add $100 each month for five years what will the balance be after 5 years?
2. Suppose that you bought a present for $1,000 and charged it to a bank credit card that has an interest rate of 1.5% per month. Each month you make a payment of $100 on the card balance - and don’t use it for any new purchases.
How long does it take you to pay off the card? What is the total amount that the present actually cost you? What is the total amount of interest that you have paid? If you have a job that pays $20 per hour after all taxes and withholdings, how many hours did you work to pay the interest?
3. You want to buy a car and need to borrow $12,000 to finance the purchase.
The dealer will lend you the funds at a rate i = 0.005 per month. What will the monthly payments be if you take out a 2 year, 3 year or 5 year loan respectively?
4. For the loan in question 3, you decide that you don’t want to make payments of more than $300 per month. What is the minimum number of months that the loan should be arranged for?
If you can make payments of $400 per month, what is the minimum numbers of months for a loan?
5. A person established a trust on January 2, 2017 with $100,000 of bonds that earn interest of 5% per year. The trust makes annual payments of $10,000 each January 2 starting next January until it is depleted.
What is the equation for the trust balance each year? For how many years will the trust be able to make the full payout and how much will be left to pay out in its final year?
What is the total amount that the trust paid out?
If the trust held bonds that earned interest payments of 8% per year, how long would it be able to make payments and what total amount would the recipients receive?