Time Value of Money Problem Assignment

Prepare solutions to the following problems and submit them as instructed by your section instructor. Show all calculations, or identify the sequence of steps and buttons to your financial calculator, to support the solutions you submit. John is purchasing a house for $500,000. He plans to make a down payment of $100,000 and take out a 30-year mortgage for $400,000. If the interest rate on the house is 5.5 per cent per year, how much will his monthly payment be for principal and interest.If the interest rate is the same, how much would his monthly payment for principal and interest be if he took out a 15-year mortgage? How much interest will John save in total with the 15-year mortgage? In a recent large PowerBall lottery, the prize was reported to be worth $590 million, which could be taken in 25 equal annual installments of $23.6 million beginning today or as a single payment today of $334 million. What interest rate is the lottery commission using?

4.0%
4.8%
5.5%
6.1%

How would you decide whether to take the 25 year annuity or the lump sum? Northeastern costs approximately $50,000 per year for a four-year program, whether completed in four years or five. Assume that a student’s parents realized 15 years ago that college was going to cost $50,000 per year for four years, and wondered how much they would have to save each year to have the money to pay for the student’s education. The assumption is that payments are made into the college fund each year (as an ordinary annuity), and payments are withdrawn from the fund at the end of the relevant years.The key information for this scenario is as follows: The number of years of contributions is 18.

Assume for simplicity that the college payments will be made at the end of years 15, 16, 17, and 18, that is just after each deposit in those years. The interest rate is 10 percent.
College costs are $50,000 per year, and are assumed to be the same for each of the four years. Using the key information for the scenario above, how much would the parents have to save each year for 18 years to have exactly the amount of money needed to pay the student’s expenses? (Solve for the annual savings that will exactly match the amount saved to the amount needed for college.) Be sure to include your calculation formulas in your answer.

Credit Card Evaluation Assignment – Week 5
Consider the following situation. Prepare your answer (approximately 1 page) identifying the responses to the questions and your reasons for them. Scenario: You have received a letter from a credit card company offering you a credit card with a limit of $5,000 at an introductory interest rate of 5%. What additional information do you need in order to make a decision whether to accept this offer? List specific characteristics you need to consider and why you think they are important. What factor(s) would cause you to accept this offer? What factor(s) would cause you to decline this offer? Be specific and thorough in your response. If you accept the offer, how will you manage your credit card debt?

Insurance Assignment – Week 9
In an article dated 7/25/14 by AJSmith on Credit.com and sourced from MSN.com, the author articulated “10 reasons to get life insurance.” Please read the article below and select the two reasons you feel are most persuasive and write a short (approximately 1 page) explanation as to why these reasons should persuade someone to buy life insurance as a young adult. 10 reasons to get life insurance

7/25/14 By AJ Smith, Credit.com
Life insurance is a more important component of your financial planning than you likely realize. Life insurance can be an important part of your financial planning. Many don’t even know why they might need life insurance. Luckily, there are tools to help answer your questions about this important decision. In order to determine how much life insurance you may need, it’s a good idea to know exactly why you are buying it in the first place. This legal contract between an insured and an insurer, usually a life insurance company, requires premiums and guarantees a payment given to the insured’s named beneficiary upon his or her death. But insurance proceeds can go toward a number of financial obligations. Check out the reasons you may want to consider purchasing life insurance. No. 1: Income replacement

If you are a breadwinner in your home, insurance can help pay the bills or offer savings potential when your income is no longer coming in. No. 2: Final expenses
With funeral and burial costs totaling more than $10,000, the death of a love one can leave quite a financial burden. Life insurance can help subsidize or cover these and other medical costs. No. 3: Estate liquidity

When an estate is inherited, there are many taxes your beneficiary will have to cover. From paying income taxes to federal estate and state inheritance taxes, insurance policies can provide some help. No. 4: Locking in a low premium

Premiums increase as people age. To optimize benefits, buying life insurance at a young age can lock in a low premium. No. 5: Transfer family wealth
Life insurance policies can allow you to leave more money to your family as part of your estate. No. 6: Build cash value
Whole or universal life policies offer a tax-advantaged way to build cash value. No. 7: Cover debts
A life insurance policy can help pay off a mortgage loan so beneficiaries can continue to live in the home or to remove the immediate need to sell it. Debt can be inherited, and then follow your family around for years if they have to go into foreclosure or even declare bankruptcy. You can see how your debt is currently impacting your credit scores for free on Credit.com. No. 8: Business succession

For a family business or otherwise, the continuity and succession may require costs like a stock redemption buy/sell agreement or cross-purchase. To protect your descendants and your company, life insurance can provide important funds. No. 9: Tax benefits

Especially for high-income earners, policies can provide a tax shelter and alternative to IRA options. No. 10: Charitable gift
A life insurance policy can help make a big impact to a cause important to the newly deceased. This could be done by donating the policy to charity or by naming the charity as beneficiary. Once you’ve decided you need life insurance, it’s a good idea to research options and compare policies to meet your needs.

Retirement Planning Assignment – Week 11
At your age (assume 20) you can assume that you will live to be 100. If you graduate at 23 and start to work, you can expect to work for 47 years, until age 70. At that time you will be eligible for full Social Security benefits, which can reasonably be expected to be $3,000 per month, and which will be received monthly for the rest of your life. You can reasonably expect that your retirement savings will earn an average of 8 percent per year throughout the period that you accumulate your retirement funding and during your retirement years. Further assume that you will want to have an annual income of $120,000 throughout your retirement. Ignoring inflation in all calculations, how much will you need to have saved at retirement in order to be able to fund your retirement? How much will you have to save each year in order to fund this amount if you start at 23? How much will you have to save each year in order to fund this amount if you start at 25? How much will you have to save each year in order to fund this amount if you start at 30? How much will you have to save each year in order to fund this amount if you start at 40? Briefly explain how you think those funds should be managed. That is, suggest a reasonable overall plan to achieve your goal, using all of the tools we have considered throughout the course.