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Problem Set 4
Directions:
1. Solve the following problems. Hand write your solutions and explanations on your
2. Show your work AND explain your reasoning using complete English sentences.
Explanations must directly follow the solution for each part of the problem.
3. You must write your name on the top right of the paper you turn in.
4. You must write the title of this problem set on the top of your paper.
5. Turn in your solutions following the directions in the assignment information on
Blackboard.
Formulae for Finance
I Pr t
A P(1 rt)


r

A  P 1  
 n
nt
  r  nt 
 1    1 
n

A  PMT  
r

n

  r  nt 
nt
 1    1 
n
 r

P1    PMT  
r

 n

n

 r
U  P 1  
 n
nT
  r  nT 
 1    1 
n

 PMT  
r

n

1. Miss Crystal Palace just purchased – you guessed it – a crystal palace for \$650,000. She
makes a 25% down payment and finances the balance with a mortgage at an interest rate of
5.6% for 15 years, making monthly payments.
a. What amount will she borrow?
b. Complete the amortization table for the first two payments. Show all work?
2. Meagan invests \$1,200 each year in an IRA for 12 years in an account that earned 5%
compounded annually. At the end of 12 years, she stopped making payments to the
account, but continued to invest her accumulated amount at 5% compounded annually for
the next 11 years.
a. What was the value of the Ira at the end of 12 years?
b. What was the value of the investment at the end of the next 11 years?
c. How much interest did she earn?
Problem Set 4 – Grading Criteria
1. Total: 10 points
a. Total: 2 points
Breakdown
Correct work: 0.5 points
Sentences explaining reasoning: 0.5 points
b. Total: 8 points
Breakdown
Payment
Correct work: 2 points
Sentences explaining reasoning: 1 point
Amortization Table
Correct work: 2 points
Sentences explaining reasoning: 1 point
2. Total: 10 points
a. Total: 4 points
Breakdown
Correct work: 1 point
Sentences explaining reasoning: 1 point
b. Total: 4 points
Breakdown
Correct work: 1 point