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Retirement Savings Calculation Guide

This document outlines five financial questions for an assignment on financial decision making. It includes questions about calculating interest costs on a 30-year mortgage, advice for accumulating retirement savings, explanations of discounting and compounding, calculating interest and principal payments on a loan, and determining retirement savings amounts. The student is asked to calculate totals, provide recommendations, explain concepts, and perform compound interest calculations.

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Abu Sufian
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42 views2 pages

Retirement Savings Calculation Guide

This document outlines five financial questions for an assignment on financial decision making. It includes questions about calculating interest costs on a 30-year mortgage, advice for accumulating retirement savings, explanations of discounting and compounding, calculating interest and principal payments on a loan, and determining retirement savings amounts. The student is asked to calculate totals, provide recommendations, explain concepts, and perform compound interest calculations.

Uploaded by

Abu Sufian
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

COMSATS Institute of Information Technology Sahiwal

Department of Management Sciences

Financial Decision Making


Instructor: Muhammad Shoaib Sajjad
Assignment Number: 1
Marks: 10
Deadline of Submission: 03-10-2016
A. You have recently applied for a 30-year mortgage to buy a $200,000 home. Your
friend is able to get a loan for $200,000 at an annual rate of 7%.
(a) What is the total interest cost over the life of the loan?
(b) What advice can you give your friend to reduce the total interest payments?
(c) Is all of the money paid towards interest payments a loss for the homeowner?
Discuss.
B. Your friend is 20-years old and wishes to accumulate $500,000 by the time he is
65-years old. What advice can you give him based on your knowledge of time
value of money? What are some dangers about the plan that you would warn him
about?

C. How would you explain the concept of discounting and compounding? What is the
relationship between the two? Give some examples of application for each.

D. Consider a loan of $ 1 million that is paid off quarterly over a period of nine years.
Calculate dollar amount of interest and loan principle repaid corresponding to each
payment if the interest rate is 6 % per year, compounded quarterly.

E. Suppose you wish to retire forty years from today. You determine that you need $ 50,000
per year once you retire,wih first retirement funds withdrawn one year from the day you
retire. You estimate that you will earn 6% per year on your retirement funds and that you
will need funds up to and including your 25th birthday after retirement.

a. How much you deposit in an account today so that you have enough funds for
retirement.
b. How much must you deposit each year in account starting one year from today, so
that you have enough funds for retirement.

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