A child is born this year. On it\'s first birthday [after 1 year], the parents d

Question

A child is born this year. On it's first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it will grow to $50,000 on the child's 18th birthday? Calculate the monthly payment on a $300,000 loan with monthly payments, at 4% interest with 30 year amortization? What is the mortgage loan balance of the loan above at the end of year 5? A borrower takes a $300,000 loan with fixed rate of 4% amortized with monthly payments over 30 years. There are prepaid finance charges of 1 point on the loan amount plus $1,500. Calculate the APR.

Explanation / Answer

15)

Future value on 18th birthday = $50,000.

Interest rate = 0.08

Nper = Number of periods = 18 years.

Compute the payment to be made at the end of the each year using excel function.

Pmt = Pmt(Rate, Nper,Pv, Fv) = =PMT(0.08,18,,-50000) = $1,335.10.

Therefore, the payment should be made at the end of every year is $1,335.10.

Note:

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