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Calculation of Future Values Exam Question - Given the recent drop in mortgage interest rates, you have decided to refinance your home.

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Introduction

Q1. Given the recent drop in mortgage interest rates, you have decided to refinance your home. Exactly 4 years ago, you obtained a Rs. 275,000.00 15-year mortgage with a fixed of 11% APR, compounded monthly. Today, you can get a 15-year loan for the currently outstanding loan balance at 8% interest, compounded monthly. This loan, however, requires you to pay a Rs.250 appraisal fee and 3 points at the time of the refinancing (1 point equals 1% of the amount borrowed). Ignore tax considerations. If you refinance, how much will your new monthly payments be after you refinance? Answer - 1 Solution:- Borrowed Amount P.V.A (11%, 15yrs) (Refer P.V.A table) Now, we will ascertain the interest amount for 4 years a) So, 2, 75,000 - 38242 = 2,36,758 (11%, 15yrs) So, the monthly installment amount would be 3,186 2, 36,758 - 33,909 = 2, 02,849 (11%, 14yrs) 2, 02,849 - 30,051 = 1, 72,798 (11%, 13 yrs) 1, 72,798 - 26,617 = 1, 46,180 (11%, 12 yrs) Working of part 1 sums:- Appraisal Charges - 250/- (1) And 3% * 1, 46,180 = 4,386 (2) So, adding 1 & 2 we get 4,636 Again, by applying the formula we can find out per month instalments charges on 1, 46,180 Borrowed Amount P.V.A (8%, 15yrs) ...read more.

Middle

The banker's required return is 10% annually. How much will you owe on the car after 16 months? Answer - 4 Given, Present value of future annuity= Rs. 15,000 Interest= 0.0083 Time= 60 installments We have to find out the annuity. Solution:- Present value of F.A. = Annuity [1/i-1/i (1+i)n ] 15,000=Annuity [1/0.0083-1/0.0083 (1.0083)60] 15,000=Annuity (1/0.0083-1/0.01362) 15,000=Annuity (120.48-73.42) 15,000=Annuity (47.06) Annuity = 15,000/47.06 Annuity = Rs. 318.742 Q5. Brijesh, who recently sold his Scorpio, placed Rs16, 000.00 in a savings account paying annual compound interest of 7%. Calculate the amount of money that will have accrued if he leaves the money in the bank for 19 years. Answer - 5 Given, Present value of savings= Rs. 16,000 Rate of interest = 7% Time period = 19 years We need to find out the future value of the current savings. Solution:- Future value = present value (1+r/100)n = 16,000(1+7/100)n = 16,000(1.07)19 = 16,000(3.616) Therefore, the Future Value of the current savings = Rs. 57,864.44 Q6. You need to have Rs18, 000.00 in 5 years. If money is placed into a savings account paying annual compound interest of 2%, how much money must be deposited today in order to have the required amount? ...read more.

Conclusion

Answer - 2 Ramesh and Laxmi has to pay some extra amount if they wants to payoff in 15 years which is to be calculated using Net Factor of Annuity. Answer - 3 We find out that when we retire after 24 years we are left with a desired amount using the formula of future value of the savings and stock. Answer - 4 For calculating the amount left at the end of 16 mts we calculate it through annuity. Answer - 5 The amount of money that will have accrued if he leaves the money in the bank for 19 years by calculating it through Future Value. Answer - 6 Money that must be deposited today in order to have the required amount is to be calculated using Future Value. Answer - 7 The APY(Annual Percent Yeild) on this investment is to be calculated using its formula. Answer - 8 Interest rate per year must you earn in order to have the required amount through Future Value. Answer - 9 Years that will be needed before you have the required amount is to be calculated by Future Value. Answer - 10 Rate at which would be taken by Bank B advertise if they compound Quarterly will be calculated by Compound rate of interest. ?? ?? ?? ?? Financial Management 1 | Page ...read more.

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