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MAP4C. Annuities and Mortgages Assignment.

Name_____________ Date________

Annuities, Mortgages, and Personal Finance

Activity 1. Modeling Compound Interest Growth.


1. Get a piece of 8.5 inch by 11 inch paper. Get a pen or pencil.
2. Write 6% per year = 0.06 as large as possible on the paper.
3. Fold the paper in half.
4. What time period, or interval of time, does each half
represent?
5. Write the interest rate per half interval in decimal form. [Hint:
half of 6%?]
6. Fold the paper to represent 12 monthly time intervals.
7. Write the interest rate per month in each interval.
8. Start with $1000. Add the interval interest rate to get the total
with interest for each month 1 to 12 using compounding interest.
What is the future amount of investing $1000 for 6 monthly
intervals, in an account paying 6% per year, compounded
monthly?
9. Demonstrate how to model a 2-year investment?

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

Activity 2. Find the future value of an annuity


investment.
Goal: Find the future total value of $1000 regularly
deposited at the end of each year, into an account
paying 10%/a, compounded monthly for 3 years.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

Activity 3. Find the total amount of interest paid.


Regular payment: $500 at the end of each year;
Interest 12%/year, compounded yearly;
Number of payments (N): 3

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

Personal Finance.
Please be aware of the following resources available to you after this course is finished.
Write down these web addresses at home. Post them on your fridge for future
reference!
Additional Financial Tools are available at:
Financial Consumer Agency of Canada.
Website: www.fcac.gc.ca
Canadian Mortgage and Housing Association.
Website: www.cmhc.ca

Tools
Formulas
Compound Interest Formula:

A = P(1 + i)n

Future Value of an Annuity Formula:

FV = Pmt[(1+i)n -1]/i

Present Value of an Annuity Formula:

PV = Pmt[1-(1+i)-n]/i

Annuity Payment Formula: Pmt = (Fv)i/[(1+i)n -1] or Pmt = (Pv)i/[1-(1+i)-n]


Where lowercase i represents the compound interval interest rate.
Financial institutions state the annual interest rate, but we often need the semi-annual
interest rate (annual rate as a decimal / 2) or the monthly interest rate (annual rate as
a decimal/12).

Proportional Reasoning and Prerequisite Skills


Did you know?

On our calendar, a leap year occurs when the year is evenly divisible by four,
except when the year value is divisible by 400;
Memory aid: The song lyrics Thirty days hath September; April; June; and
November. All the rest have thirty one. Except for February, which has 28, unless
its a leap year when it has 29.
Memory aid: Knuckles on your fists also provide a way to remember whether or
not a month has 30 days or 31 days. Make two fists and count the knuckle and
troughs between the knuckles. Knuckles have 31 days. Troughs between
knuckles have fewer days. Do not count the space between your fists as a
trough. It memory aid works. Try it!

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

Activity 4. Problem Solving Questions Involving Personal Finance.


Answer all questions. Use additional paper as required and attach them to this report.
You may have to complete some of this work on your own time, using computers,
and/or the internet.
1. How many months in each time period?
Years
5 years
10 years
20 years
25 year
30 years

[2 marks]

Months

2. How many weeks are in each time period?

[2 marks]

Number of Weeks
2 years
5 years
20 years
30 years

3. Depositing $100 per month means depositing how much in each time period? [2
marks]
Amount ($)
5 years
10 years
20 years
25 year
30 years

4. Earning $40 000 in one year means earning an average of how much in each time
period? [3 marks]
Time
Period
a month
one week
one day
six and a
half
months
three
months

Amount ($)

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


5. How many payments are made in one year for each payment frequency? [3 marks]
Frequency Number of
payments per
year.
Monthly
quarterly
semiannually
Weekly
bi-weekly
semimonthly

6. State whether or not the year shown is a leap year.

[3 marks]

a) Year 2012? Explain how we know.

b) Year 2013? Explain how we know.

c) The year that will you turn age 65 is______. Is it a leap year? How do you
know?

7. Calculate the value of the following exponential expressions:

[3 marks]

a) 1000(1.0325)1
=
b) 1000(1.0325)60
=
c) 1000(1.0325)-60
8. a) State the compound interest formula in terms of A, P, i, and n. ______________
b) Rewrite the compound interest formula A=P(1+i)n in terms of FV, PV, i, and n.
[2 marks]
9. True or False? Multiplying a value by one will result in a larger value. Give an
example. [1 mark]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


10. True or False? Multiplying any positive number by a number greater than one will
result in a larger value. [1 mark]

11. True or False? Multiplying any positive value by a number between zero and one
will result in a larger value. [1 mark]

12. True or False? The number 0.804 is greater than the number 0.84. [1 mark]

13. True or False? The number 1 + an increase of 5% is greater than one. [1 mark]

14. True or False? A 5% decrease in value can be found by multiplying the initial value
by 0.95. [1 mark]

15. True or False. A 5% increase in value can be found by multiplying the initial value
by 1.05. [1 mark]

16. True or False. Another way of saying per year is per annum. [1 mark]

17. True or False. Another way of writing per annum is /a. For example, 6%/a. [1
mark]

18. True or False. A series of payments or deposits paid at regular intervals is called an
annuity. [1 mark]

19. True of False. Understanding math improves the likelihood of making good
financial decisions. Justify the statement. [1 mark]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


20. True or False. The interest rate per compounding interval is often represented as
the variable i.
[1 mark]

21. True or False. The compound interest formula A=P(1+i)n can also be written as the
future value formula FV = PV(1+i)n. [1 mark]

22. How is an annuity different from a one-time investment? Show the difference
visually using time lines. [2 marks]

23. Show step-by-step how the future value formula, FV = PV(1+i)n, can be rearranged
to give us the present value formula PV = FV(1+i)-n.
[2 marks]

24. How many semi-monthly payments will be made if payments are made for a period
of one year? Explain your reasoning. [1 mark]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


25. How many bi-weekly payments will be made if payments are made for a period of
one year? Explain your reasoning. [1 mark]

26. Solve 8000 = 1.005n. Do not round. Hint: Use log button. [2 marks]

27. Solve 9000 = X60. Do not round. [2 marks]

28. Solve 7000 = (1+i)60. Do not round. Show all steps. [2 marks]

29. Write is radical form, then evaluate

. [1 mark]

30. True or False. A mortgage is a type of annuity. [1 mark]

31. Show the calculations. A person buys a home for $300 000 on June 1st, 2016. The
home value increases 3% each year. What is the value of the home at each of these
times in the future? :
a) June 2017?
b) June 2018?
c) June 2026?
marks]

[3

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


32. What is meant by home equity? Give a numeric example to support your
explanation. [2 marks]

33. You are buying a $300 000 property and make a down payment of 5% of its value.
[5 marks]
a) Show how to calculate the amount of the down payment.

b) Show how to calculate the amount of money needed for the mortgage.

c) How much equity would you have in the property on the date purchased?

d) Assume the property increase in value by 2.5% yearly, calculate the value of
the property each year for the next 5 years. Use a data table with appropriate column
titles to display the information.

34. Determine the future value of a single investment of $1000 at 4% per year,
compounded annually, for 45 years. [5 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


35. Draw a time line diagram to represent an annuity situation where $200 per month
is invested into an account for six months, at an annual interest rate of 4%. Calculate
the future value of the annuity. [5 marks]

36. Research, gather and interpret information about common real-life annuities such
as RRSPs, RESPs, and RRIFs, describe the key features of an annuity. [6 marks]
Annuity
RRSP

Key Purpose/Features
What does this mean?
How does it work?

RESP

What does this mean?


How does it work?

RRIF

What does this mean?


How does it work?

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


37. Use a TVM calculator (see teacher). In the table below, write the meaning of each
of the variables represented in the Time-Value-of-Money app:
[no marks]
N=
I%=
PV=
PMT=
FV=
P/Y=
C/Y=
PMT:END
BEGIN

Number of payments
Annual interest rate
Present Value
Regular Payment
Future Value
Number of payments per year
Number of compounding intervals per year
<Are payments made at the end or beginning?>

38. Given an ordinary simple annuity with semi-annual deposits of $1000, earning 6%
interest per year compounded semi-annually, over a 20-year term, show which of the
following results in the greatest return by drawing the TVM app data table contents for
each situation and writing a summary conclusion:
Doubling Payment
N=
I%=
PV=
PMT=
2000
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Double payments to
$2000?

Conclusion:

N=
I%=
12
PV=
PMT=
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Doubling the Interest
Rate?

N=
I%=
PV=
PMT=
FV=
P/Y=
4
C/Y=
PMT:END
BEGIN
Doubling the
frequency of the
payments and also
doubling the
compounding
frequency?

N=
I%=
PV=
PMT=
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Doubling the payment
amount and
compounding
frequency to four
times each year?

[20 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


39.

[TVM solver/Spreadsheet/Graphing Software - Solve problems using technology that involve the amount, the
present value, and the regular payment of an ordinary simple annuity.]

Task: Show how to calculate the total interest paid over the life of a $10 000 loan with
monthly repayments over 2 years at 8% per year compounded monthly, and compare
the total interest with the original principal of the loan. Does it surprise you how much
interest must be repaid? Of the total amount paid, what amount and percent is principal
and what amount and percent is interest? Draw a stacked bar graph to visually display
these percentages. [10 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


40. [Curriculum: Demonstrate an understanding of annuities used as long-term savings plans.]
a) What is an annuity?

b) Problem: Using the annuity formula,

(
((

)( )
)

[2 marks]

, show how to calculate the

monthly payment required to save $20000 over 5 years, in a savings account at


2.5%/a, compounded monthly.
[8 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


41. [Curriculum:

demonstrate, through investigation using technology (e.g., a TVM Solver), the advantages of
starting deposits earlier when investing in annuities used as long-term savings plans.]

Problem: If you want to have a million dollars at age 65, how much would you have to
contribute monthly into an investment that pays 6% per annum, compounded monthly,
beginning at age 20? At age 35? At age 50? Show your work. Write to explain your
reasoning. [10 marks]
Starting Age 20

Starting Age 35

Starting Age 50

42. [gather and interpret information about mortgages, describe features associated with mortgages (e.g., mortgages are
annuities for which the present value is the amount borrowed to purchase a home; the interest on a mortgage is
compounded semi-annually but often paid monthly), and compare different types of mortgages (e.g., open mortgage,
closed mortgage, variable-rate mortgage)].

Tasks: [5 marks]
a) Explain the difference between an open mortgage and a closed mortgage.

b) Explain the difference between a variable-rate mortgage and a fixed rate


mortgage, using an example.

c) State the compounding frequency used to calculate Canadian mortgages.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


43. [Curriculum: Read and interpret an amortization table for a mortgage]

Task: You purchase a condominium with a $25 000 down payment, and you mortgage
the balance at 6.5% per year, compounded semi-annually, over 25 years, payable
monthly. Use an amortization table to compare the interest paid in the first year of the
mortgage with the interest paid in the 25th year. Use a 5-year term. [10 marks]

a)
b)
c)
d)
e)
f)
g)

How much money was borrowed to purchase the house? _______________


What was the purchase price of the house?........................_______________
How often must payments be made?................................ _______________
How much money must be paid each month?................... _______________
How much principal was paid in month 1? _____ month 12?________
How much interest was paid in month 1?_____ ; month 12?________
If, one year after the date of purchase, the house increase in value 3%,
determine the change in house value, and in net worth, due to owning the
house.

[10 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


44. [Curriculum: Generate an amortization table for a mortgage, using a variety of tools and strategies (e.g., input data into
an online mortgage calculator; determine the payments using the TVM Solver on a graphing calculator and generate the
amortization table using a spreadsheet), calculate the total interest paid over the life of a mortgage, and compare the total
interest with the original principal of the mortgage.] Task: Use the Government of Canada online

mortgage calculator available at www.fcac.gc.ca to create a mortgage payment


schedule for a Canadian mortgage amount between $150 000 and $350 000 at 5%/a,
amortized for 25 years. Use a 5-year term. List the results of the amortization summary
table (show variable names and values). [10 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


45. [Curriculum: Making comparisons between mortgage options. Determine, through investigation using technology
(e.g., TVM Solver, online tools, or financial software), the effects of varying payment periods, regular payments, and
interest rates on the length of time needed to pay off a mortgage and on the total interest paid.]

Task: Create and print mortgage schedules using the mortgage tools available at
www.fcac.gc.ca , then use these reports to calculate the interest saved on a $100 000
Canadian (compounded semi-annually) mortgage with monthly payments, at 6% per
annum, when it is amortized over 20 years instead of 25 years. Clearly state your
findings for each. Use a 5-year term.
[10 marks]
20 year Amortization

vs.

25 year Amortization

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


46. . Research a town-home, or single detached hope, for sale in Durham Region. Can
a couple afford the home on a family income of $50 000 per year? $90 000 per year?
Report on your Investigation. Explain your reasoning. Provide mathematical evidence to
support your reasoning.
Online, find a home for sale in the range of $200000 to $400000;
Start a Word document file to write a report;
Determine the down payment amount at 10% of the home
price:_______________;
Determine the amount of the mortgage required:_____________________;
Determine the monthly payment required: _________________;
Write a monthly budget showing income, expenses, and balance remaining.
Include $1200 for food; monthly mortgage payment amount; utilities at
$400/mo.; phone at $80/mo; clothing at $100/mo.; entertainment at $100/mo.;
maintenance at $100/mo.; transportation at $200/mo.; plus any other items that
you care to include.
Submit a report summarizing your findings. Can this couple financial afford such
a home on their income? JUSTIFY your conclusions.
Q46. Marking Rubric

Level 1
(50-59) 5

Level 2
(60-69)

Thinking and Inquiry.


Ability to comprehend the
situation and find
information.

Little
evidence
provided.
Substantial
ly below
standard
expected.
Little, or
incorrect,
mathemati
cal
reasoning
is evident.

Some
evidence
provide, but
lacks detail.

Little or no
written
statements
or
evidence
to support
the

Application of
mathematical reasoning.
(Down payment issues
addressed.)
(Payment schedule
showing monthly principal,
interest, and balance owing
is included).
(Other monthly financial
issues addressed food,
etc.)
Communication:
(Report is clearly written
and effectively
communicated with proper
spelling
, punctuation, and
grammar; Report includes:

Level 3
(70-79)
7
[Meets
Provincial
Standard]
Sufficient
inquiry
evidence
provided.

Level 4
(80 100)
10

Some
mathematical
reasoning is
evident;
Reasoning
may contain
some small
or nonsignificant
errors.

Good
mathematic
al
reasoning
clearly
evident.

Thorough
mathematical
reasoning is evident
and referenced in the
report.

Some written
statements to
support or
evidence to
support the
financial
argument.

Substantial
written
statements
or evidence
to support
the
financial

Thorough written
statements and
evidence clearly
support the financial
argument.

Thoroughly
researched and
documented. Student
clearly understands
the scope of the
assignment.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________


a photo of the home for
sale ad; an fcac.gc.ca
mortgage payment
schedule; a viable 12month budget; and a
written explanation and
summary.
Total (out of 30)

financial
argument.

argument.