MAP4C. Annuities and Mortgages Assignment.

Name_____________ Date________

Part 2, Questions 28-39 Answers. Problem Solving Questions Involving

Personal Finance. (Continued from last class.)
Answer all questions. Use additional paper as required and attach them to this report.
You may have to complete some of this work on your own time, using computers,
and/or the internet.
28. Solve 7000 = (1+i)60. Do not round. Show all steps. [2 marks]

29. Write is radical form, then evaluate

. [1 mark]

= 27
30.

True

or False. A mortgage is a type of annuity. [1 mark]

The amount borrowed is the present value of the annuity.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

The future value of the annuity is $0.00.
31. Show the calculations. A person buys a home for $300 000 on June 1st, 2016. The
home value increases 3% each year. What is the value of the home at each of these
times in the future? :
a) June 2017? $309000
b) June 2018? $318270
c) June 2026? $403174.91

[3 marks]

32. What is meant by home equity? Give a numeric example to support your
explanation. [2 marks]
Calculated as home value remaining mortgage; home equity is the portion of the
home value that is belongs to the owner.
Home equity on a $300000 home having a $200000 mortgage is $100000.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

33. You are buying a $300 000 property and make a down payment of 5% of its value.
[5 marks]
a) Show how to calculate the amount of the down payment.
5% of $300000 = (0.05)($300000) = $15000 down payment.
b) Show how to calculate the amount of money needed for the mortgage.
$300000 - $15000 = $285000, which is the amount of the mortgage.
c) How much equity would you have in the property on the date purchased?
$15000 is the home owner equity on the date purchase.
d) Assume the property increase in value by 2.5% yearly, calculate the value of
the property each year for the next 5 years. Use a data table with appropriate column
titles to display the information.

34. Determine the future value of a single investment of $1000 at 4% per year,
compounded annually, for 45 years. [5 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

35. Draw a time line diagram to represent an annuity situation where $200 per month
is invested into an account for six months, at an annual interest rate of 4%. Calculate
the future value of the annuity. [5 marks]

36. Research, gather and interpret information about common real-life annuities such
as RRSPs, RESPs, and RRIFs, describe the key features of an annuity. [6 marks]
Annuity
RRSP

RESP

RRIF

Key Purpose/Features
What does this mean?
Registered Retirement Savings Plan.
How does it work?
The government provides a tax saving (deferral) now as an incentive for
people to save for their retirement.
What does this mean?
Registered Education Savings Plan
How does it work?
The government provides a tax incentive now as an incentive for people
to saving money towards post-secondary education.
What does this mean?
Registered Retirement Savings Plan
How does it work?
The government provides a tax incentive allowing people withdraw income
over a period of time. This has the effect of deferring taxable income to
future years.

37. Use a TVM calculator (see teacher). In the table below, write the meaning of each
of the variables represented in the Time-Value-of-Money app:
[Information only]
N=
I%=
PV=
PMT=
FV=
P/Y=

Number of payments
Annual interest rate
Present Value
Regular Payment
Future Value
Number of payments per year

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

C/Y=
PMT:END
BEGIN

Number of compounding intervals per year

<Are payments made at the end or beginning?>

38. [TI83 Calculator required.]Given an ordinary simple annuity with semi-annual

deposits of $1000, earning 6% interest per year compounded semi-annually, over a 20year term, show which of the following results in the greatest return by drawing the
TVM app data table contents for each situation and writing a summary conclusion:
Doubling Payment
N=
I%=
PV=
PMT=
2000
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Double payments to
$2000?

Conclusion:

N=
I%=
12
PV=
PMT=
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Doubling the Interest
Rate?

N=
I%=
PV=
PMT=
FV=
P/Y=
4
C/Y=
PMT:END
BEGIN
Doubling the
frequency of the
payments and also
doubling the
compounding
frequency?

N=
I%=
PV=
PMT=
FV=
P/Y=
C/Y=
PMT:END
BEGIN
Doubling the payment
amount and
compounding
frequency to four
times each year?

[20 marks]

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

39.

[TVM solver/Spreadsheet/Graphing Software - Solve problems using technology that involve the amount, the
present value, and the regular payment of an ordinary simple annuity.]

Tools: Use either:

a TI83 graphing calculator; or

Government of Canada Mortgage Calculator

Task: Calculate the total interest paid over the life of a

$10 000 loan with monthly repayments over 2 years at
8% per year compounded monthly, and compare the
total interest with the original principal of the loan.

Does it surprise you how much interest must be repaid?

Answers may vary.

MAP4C. Annuities and Mortgages Assignment. Name_____________ Date________

Of the total amount paid, what amount and percent is principal and what amount and
percent is interest? [10 marks]

The principal amount is $10000.

The total amount of interest paid is $840.31.
Percent interest paid is $840.31/$10840.31 = 7.8%
Percent principal paid is $10000/$10840.31 = 92.2%