Basic future values



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Chapter 2 Questions, Edition 11
31.

Amortizing loans A mortgage requires you to pay $70,000 at the end of each of the next eight years. The interest rate is 8%.

  1. What is the present value of these payments?

  2. Calculate for each year the loan balance that remains outstanding, the interest payment on the loan, and the reduction in the loan balance.

32.

Growing annuities You estimate that by the time you retire in 35 years, you will have accumulated savings of $2 million. If the interest rate is 8% and you live 15 years after retirement, what annual level of expenditure will those savings support?

Unfortunately, inflation will eat into the value of your retirement income. Assume a 4% inflation rate and work out a spending program for your retirement that will allow you to increase your expenditure in line with inflation.




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