1.6 Practice Problems

J. Zachary Klingensmith

Problem 1.6.1: Chen deposits $200 per month into a retirement account. He earns an annual interest rate of 6%. How much will be in his account after 30 years?

Answer: $200,903

Problem 1.6.2: Ami wants to start an emergency fund. She deposits $50 per month into an account that pays 2% interest. How much will she have in 5 years?

Answer: $3,152

Problem 1.6.3: Greg is planning to take an extravagant vacation in 10 years. He will need $15,000 to take the trip. He wants to make weekly contributions. If he has an account that pays 5% per year, how much must he deposit each week?

Answer: $22.25/wk

Problem 1.6.4: You purchase a car for $30,000. The bank has approved you for a car loan at a rate of 6.5% which will be repaid over 60 months (5 years). How much will you pay per month? How much interest will you pay on the loan?

Answer: $586.98/month; $5,250 of interest

Problem 1.6.5: You purchase a house for $350,000. Assume there is no downpayment (we will talk about these later.) If the bank approves you for a 30-year mortgage at a rate of 4.1%, how much will you pay each month? How much interest will you pay over the life of the loan?

Answers: $1,691/month; $258,760 of interest

Problem 1.6.6: You take out a $20,000 home improvement loan that will be paid in six equal annual payments. The interest rate on the loan is 8%. Create an amortization schedule for this loan.

Answers: $4,326.31/month; see video for amortization schedule

Problem 1.6.7: Charles gets a $30,000 car loan at a 4% interest rate. He has arranged with the bank to make four equal annual payments. Create an amortization schedule for this loan.

Answer: $8,264.70/month; see video for amortization schedule

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