Problem
Loan amortization
Jan sold her house on December 31 and took a $35,000 mortgage as part of the payment. The 10-year mortgage has a 11% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year.
a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent.
$
b. How much interest was included in the first payment? Round your answer to the nearest cent.
$
How much repayment of principal was included? Round your answer to the nearest cent.
$
c. How much interest must Jan report on Schedule B for the first year? Round your answer to the nearest cent.
$
Problem 5- 19 Future value of an annuity
Your client is 25 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $10,000 per year; and you advise her to invest it in the stock market, which you expect to provide an average return of 9% in the future.
If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent.
$
How much will she have at 70? Round your answer to the nearest cent.
$
She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Round your answers to the nearest cent.
Annual withdrawals if she retires at 65: $
Annual withdrawals if she retires at 70: $
Problem
Present value of an annuity
Find the present values of these ordinary annuities. Discounting occurs once a year. Round your answers to the nearest cent.
$900 per year for 12 years at 14%.
$
$450 per year for 6 years at 7%.
$
$600 per year for 12 years at 0%.
$
Rework previous parts assuming that they are annuities due. Round your answers to the nearest cent.
$900 per year for 12 years at 14%.
$
$450 per year for 6 years at 7%.
$
$600 per year for 12 years at 0%.
$