Assignment 3

Problem 1:

Melody won a $30 million lottery today. The payout is the following: Melody gets $1 million today and $1 million each year for the next 29 years. Suppose that the discount rate is 6%, how much money worth today for the lottery assuming federal tax rate is 25% and state tax is 8%?

Problem 2:

You are offered the opportunity to put some money away for retirement. You will receive 6 annual payments of $20,000 each beginning in 25 years. How much would you be willing to invest today if you desire an interest rate of 9%?

Problem 3:

If you can afford a $500 monthly car payment, how much of a car can you afford if interest rate is 5% on 48-month loans?

Problem 4:

You borrow a GPM of $120,000 with annual payments and 30-year term. The interest rate is 10% and the payment factors from year 1 to year 30 are: 10%, 20%, 30%, 40%, 50%, 60%, 70%, 80%, 90%, 100%, …, 100%.  

Questions:

1.     What are the annual payments for years 1 to 30?

2.     What is remaining balance at the end of each year?

3.     What are the interest payment and principal payment for years 1 to 30?