Finance Homework

1. Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $180,000 and 4 points are charged, the loan repayment schedule is calculated on a $180,000 loan but the net amount the borrower receives is only $172,800. Assume the interest rate is .75% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 264 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel.) 2. Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $180,000 and 4 points are charged, the loan repayment schedule is calculated on a $180,000 loan but the net amount the borrower receives is only $172,800. Assume the interest rate is .75% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 264 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel.) 3. A couple will retire in 50 years; they plan to spend about $36,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual payment $ b. How would the answer to part (a) change if the couple also realize that in 20 years they will need to spend $66,000 on their child’s college education? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual payment $