Test 6 Review

Name:__________________________________

Date:______________

To fully get you prepared for your test, this review will involve a mixture of problems that
require you to use your TVM calculator and other knowledge of investments. It is important that
you know when to do what, thus the review will not be in any particular order. My suggestion,
follow the following steps with each problem:
n gt
r

FV PV 1
n

Write if you can use

or if you need to use the TVM calculator.

Write down the variable that you are trying to find.

Perform the needed operations to solve for your unknown variable.
Lastly, put your answer in context of the situation and see if it makes sense.

Suppose you wanted to invest $5000 into a savings account with a 3.5% interest rate
compounded monthly. What will be your balance in the account after 15 years?

You decide that you want to invest money in a CD at the bank. You decide that you can
invest $400 and are told that your CD will have a simple interest rate of 4.25%. How
much money can you expect from each interest payment?

You decide that you want to buy a car and you go to the local car dealership and are preapproved for a $25,000 loan with a 5-year, 2.75% interest rate compounded monthly.
How much should you expect your monthly payment to be?

You racked up $4000 in credit card debt, cut up your card, and plan to pay it off. The
interest rate on your card is 18.99% and you can afford monthly payments of $350. How
many payments will it take you to pay off your card?

What are the differences between a CD and a savings account?

You want to buy a car but are scared that all you can afford is a hooptie. Based off of your
meager Wendys income, you decide that you can afford monthly payments of $200. You
went to the Bank of Branson and estimated that you could get approved for a 4 year loan
with a 6% interest rate compounded monthly. What is the total value of the loan that you
should take out?

You decide that you are going to invest your Christmas money into a savings account.
The savings account that you choose has a 3.5% interest rate compounded weekly. You
plan to put the $200 that you got for Christmas into the account and not touch it for 4
years. How much money will you have in the account after the four years?

You decide to take Mr. Bransons advice and buy a house that you and your buddys can
live in while you attend college. The house that you decide to buy is $110,000. You go
the local mortgage lender and get approved for a 30 year mortgage loan at a 5.35%
interest rate compounded monthly. How much will your monthly mortgage payment be?

You are trying to decide between two different bank loans to purchase a car. One bank
will loan you $15,000 with a 5 year 4.35% interest rate. The other bank will loan you
$15,000 with a 4 year 4.25% interest rate. Which loan will cost you more money per
month? Which loan will cost you more money over the life of the loan?

10 You want to buy a television at Best Buy and are planning on using your credit card to
purchase it. Your credit card will give you a special interest rate of 3% compounded
monthly if you pay off your balance in 18 monthly payments. If you can only afford $100
monthly payments, how much can you spend on the television?

11 You want to invest in an annuity so that when you retire in 25 years, you can live
comfortably. You invest $10,000 into the annuity when you first open the account. Your
investment will gain interest at a rate of 4.15% compounded annually. If you want to
have $1,000,000 in the account when you retire, how much do your monthly payments
need to be?

12 You find your dream car, a Lotus Evora 400. Unfortunately it costs $89,900. Your bank
offers you the deal of a lifetime giving you a loan with a 1.75% interest rate compounded
monthly over a seven year period. How much will your monthly payments be if you
decide to buy the car?

13 You decide to invest $1000 of your money into a savings account that collects 2.85%
interest compounded daily. How much will your account balance after 3 years of not
touching the money?

14 Your grandpa put together an annuity when he was young and it has matured. When he
began the account, he didnt initially put any money in the annuity. However, he put $50
in the account every month for 30 years. If the account gains 2.35% interest compounded
yearly, how much money does he currently have in the account?

15 You want to buy a house after you graduate from high school. You know that you can
afford $500 monthly payments and have been pre-approved for a loan at 5% interest
compounded monthly. How much of a 30 year loan can you afford?

16 You put $2500 on your credit card and want to pay it off before 2017 (13 payments). If
your card comes with a 20.25% interest rate compounded monthly, how much do your
monthly payments need to be to accomplish your goal of no balance by 2017?

Use the given amortization table to answer the questions below.

17 How much money did you initially borrow?

18 How much money did you pay in interest over the 30 year loan?
19 How much did you pay all together over the life of the loan?
20 If you sold the house on after the first year for $152,000, how much money would you
actually walk away with?
21 What is the amount of your monthly payment?
22 How much of your payment went to interest on the 352nd payment?