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Question #1:

A loan officer states, “Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage.” Calculate the difference in payments on a 30-year mortgage at 9% interest versus a 15-year mortgage with 8.5% interest. Both mortgages are for $300,000 and have monthly payments. What is the difference in total dollars that will be paid to the lender under each loan?

 

 

Question #2:

What are the differences between the bond’s coupon rate, current yield, and yield to maturity?

 

 

 

Question #3:

Assume the total expense for your current year in college equals $20,000. Approximately how much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount?

 

 

Question #4:

Kessen Inc.’s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70. The market interest rate for the bonds is 8.5%. What is the bond’s price?