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M. Tarrazo, Ph.D. Investment Analysis. Fall 2020. Graded Assignment #1 (20% of the grade, due: 9/22) The final grade will be computed as the weighted average of the grades in each of the assignments. Assignments weights: first, 20%; second, 20%, third, 25%; fourth, 35%. Each of the assignments can be done individually or with other students (a maximum of three students per group). Assignments must sent to me via email as a written document (preferably MS Word, Google doc, rich-text format). Please write down clearly and completely the name of each student submitting the homework. 1. Car plan. Given the following data: Car price, $20,000; Downpayment, 10%; Saving rate, 2%; Saving time, 2; Loan rate, 6%; Loan term, 4 years a) Calculate the monthly saving to pay for the down payment, and the amount of the monthly loan payment. b) Explain the plan to your client. 2. House plan. Given the following data: House price, $350,000; Downpayment, 10%; Saving rate, 8%; Saving time, 2; Loan rate, 4.20%; Loan term, 30 years a) Calculate the monthly saving to pay for the down payment, and the amount of the monthly loan payment. b) Explain the plan to your client. 3. Loan amortization table. Build the amortization table for a yearly loan of the following characteristics: Interest, 10%; Time, 6 years; Principal, $100,000. Show the table and explain how it was calculated. 4. Balloon Payment --shortcut way. A couple is thinking about closing on a home plan with the following characteristics: House price, 350000; Downpayment, 10%; Loan rate, 4.20%; Loan term, 30 years. They may move after 20 years, and they are wondering what their loan balance would be like at that time. 1) Calculate the corresponding numbers: a) Principal due b) Total dollars paid _______ c) Principal paid d) Interest paid 2) Explain the numbers to your client. 5. Effective rates. Which of the following loans offers a lower effective rate? Calculate the numbers and explain why. House B C House price 400000 400000 Downpayment 10% 10% Loan rate 4.10% 4.05% Loan term 30 30 Points 0.00 1.00 M. Tarrazo, Ph.D. Investment Analysis. Fall 2020. a) Payment, monthly ________________ b) Eff. rate monthly ________________ c) Eff. rate yearly ________________ 6. Real estate mortgage loans. a) Analyze the following loan and provide the charts for a) the proportions of interest and principal through the life of the loan and, b) accumulated interest and principal. Interest 4.00% yearly; Time 30 years, or 360 in months; Principal, $360,000.00 b) Which is better for the borrower, to prepay principal or interest? Why? c) When is it best to prepay a loan? Why? 7. Trusts, planned expenses. A company needs to set up a fund to cover certain anticipated research expenses of $20,000 per year for 20 years. The firm anticipates it can earn a minimum of 3% on such fund. How much money is needed for such fund? __________ . (Use yearly figures.) 8. Self-annuitizing. A couple has accumulated $100,000. Their daughter is planning on a five year program of graduate study, and they would like to know how much monthly income could be withdrawn if that amount were invested at 4% during the five year period. Answer: ________ . 9. Retirement plan (use yearly numbers). 1) Calculate a) the funds needed at retirement, and b) the yearly saving to accumulate such an amount for the following data; and 2) explain the plan to a client. Retirement period to cover 30 Retirement annuity 30000 Rate on retirement account 4% Rate on savings 8% Years from retirement 20 a) Funds needed ___________ b) Yearly saving 10. Insurance annuity (Immediate). An insurance company offers an immediate annuity to one of your clients, where he will get monthly payments of $1600 for as long as he lives at the cost of $258,244.00. a) What is the implied rate of return if your client were to live for 20 years? _________ b) Is it a good deal? (Note: tricky question) ----------------------------------------------------