7. a). Suppose you are buying your first condo for $145,000, and you will make a

Question

7. a). Suppose you are buying your first condo for $145,000, and you will make a $15,000
down payment. You have arranged to finance the remainder with a 30-year, monthly
payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment
due in one month. What will your monthly payments be?

b). Your sister turned 35 today, and she is planning to save $7,000 per year for
retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

Explanation / Answer

1.$821.69

years 30 , payments -12 so N= 360

nominal rate 6.50%
periodic 0.54%
$145,000- purchase price
doen paymenst 15000
pv $130,000
fv 0

2.64,932.20

Step 1: FInd out how much she will have in 30 years:

(using financial calculator)

30 N (# years)
7.5 i (Return on investment)
0 PV (current value)
7000 PMT (yearly payment)
Solve for FV = $723,795.81

Step 2: Now that we have the value we can solve for how much she can withdraw

25 N (# years expected to live)
7.5 i (return on investment)
-723,795.81 PV (current value of investment)
0 FV (she plans to use all the money)
solve for pmt = 64,932.20

She will be able to withdraw $64,932.20 every year from her retirement.

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