(ey WY 8:1 Simple Interest, pp. 481-482. $532 1. a) §) Ist year: A 2nd year 3rd year: A ii) A = S00(1 + (0.064 x 15)) = $980 ) i) Ist year: A = 1250(1 + 0.041) = $1301.25 Ind year: A = 1250(1 + 0.082) = $1352.50; 3rd year: A = 1250(1 ++ 0.123) = $1403.75 fi) A = 1250(1 + (0,041 x 15)) = $2018.75 ©) i) Ist year: A = 25 000(1 + 0.05) = $26 250 2nd year: A = 25 000(1 + 0.10) = $27 500; 3rd year: A = ($25 000)(1 + 0.15) = $28 750 A = ($25000)(1 + (0.05 x 15)) = $43 750 ) i) Ist year: A = ($1700)(1 + 0.023) 2nd year: A = ($1700)(1 + 0.046 3rd ye ($1700)(1 + 0.069) fi) A= ($1700)(1 + (0.023 x 15)) = $2286.50 2, a) The principal is represented by the point at which the graph intersects with the vertical axis. That point is (0, $2000), so the principal is $2000. b) From the graph, the interest eared in 5 years appears to be approximately $600. If you know the interest rate, you can compute the interest exactly. After 4 years, the interest earned is ($2500 ~ $2000) = $500. Use this to compute the interest rate: 500 So the interest after S years is 1 = 2000(0.0625 x 5) = $625 ©) As determined in b), the interest rate is, 0.0625, or 6.25%. d) A(O) = 2000(1 + 0.0251) 2000 + 1251 3. The interest is calculated using / = 200 = 850(0.07 x £) 200 = 59.51 1 3.361 years = 3 years, 132 days 4, Using the formula for simple interest, T= Pr, 2 26.19 = 2845 x rx 365 26.19 * 93.53r 0.280, or 28%/a Nelson Functions 11 Solutions Manual S.a) J = 500 x 0,048 x 8 = $192 A = 500 + 192 = $692 b) £ = 3200 x 0.098 x 12 = $3763.20 A = 3200 + 3763.20 = $6963.20 ©) 1 = 5000 X 0.039 x z $260 A = 5000 + 260 = $5260 @ r= 128 x 018 x 3 = $9.60 A = 128 + 9.60 = $137.60 e) 1 = 50000 x 0,24 xo $3923.08 35392308 A = 50.000 + 3923.08 6, Using the formula for total amount earning simple interest, A = Pb Pra, 8000 = 4800 + 4800(r x 8.5) 8000 = 4800 + 40 800r 3200 = 40 800r r= 0.0784 r= 784%/a 7. Using the formula for simple interest, 1 = Prt, 1 °(0.085 x 4) P(0.00525) 4761905 ‘You must invest at least $47 619.05 at 6.3%fa to earn $250 in interest each month. 8. a) 1 = 3500 x 0.055 x 1 = 192.5 Using the formula for simple interest, 7 = Prt, ‘Nina's deposit increases by $192.50 each year. }b) Using the formula for total amount earning simple interest, A = P+ Prt, After one year: A = 3500 + 3500(0.055) 3500 + 192.5 92.50 500 + 3500(0.055 x 2) After two years: A After three years: A = 3500 + 3500(0.055 * 3) 500 + 3500(0.165) 77.50 500 + 3500(0.055 x 4) = 3500 + 3500(0.22) 270.00 After four years: A 83After five years: A = 3500 + 3500(0.055 x 5) 3500 + 3500(0.275) = 4462.50 ©) The total amount after m years is 1, = 3500 + 3500(0.055:) = 3500 + 192.5n 5 $4,000, E 3300000 # $2,00000 5100000 Fe $0.00 012345678910 Year (n) 9, a) Because Ahmad’s account is a simple interest account, it earns the same amount each ‘quarter. So the amount earmed in the first quat= ter is equal to the amount eamed in the second ‘quarter: 3994.32 ~ P= 4248.64 ~ 399432 P= 3740 Ahmad’s original investment was $3740. b) The interest rate is the same in each quarter. Using the formula for total amount earning sim- ple interest, A = P + Prt, and the first quarter figures, 3994.32 = 3740 + 3740(r X 1) 3994.32 = 3740 + 3740r = 0.068 1 = 68%/q or 27.2%/a 10, a) The interest in the first year is equal to the interest in the second year: 2081.25 ~ P= 23125 ~ 2081.25 P= 1850 Anita originally borrowed $1850, 1b) The interest Anita pays is the same each year, 2081.25 - 1850 = 2125 So the total amount is 4, = 1850 + 231.25n. ©) Using the solution for b), 7500 = 1850 + 231.251 n= 2443 years Expressing 0.43 years as days, 0.43 x 365 ~ 156.95 Anita will owe $7500 after 24 years and 157 days. LL Using the formula for total amount earning simple interest, A = P+ Prt, 5200 + 5200(0.031) 3600 + 3600(0.05t) a4 Set A, = Ap and solve for to find when the investments are equal 5200 + 5200(0.03/) = 3600 + 3600(0.051) 5200 + 156 = 3600 + 1801 24t = 1600 2 1 = 665 years After 66 years and 8 months, Dave's investment will be worth more than Len’s 12, Lottie’s function is equivalent to the for- mula for total amount earning simple interest, A= P+ Prt A(t) = 750 + (27.75 X 1) + t 4o¢ A= P+ (Pr Xi) ‘Since P represents the principal, Lottie invested $750. Compute the interest rate, r, as follows: 13, The formula for total amount caring simple interest is A = P + Prt, Double the original amount is 2P, So substitute and solve for D to find a formula for the doubling time: 2P =P + PD Po PD ie: me p=t 14, Each year Sara’s parents increase the principal by $500. Think of it as a new, $500 investment each year. The total amount of the first investment, which lasts for 25 years, is Ay = 500 -+ 500(0.064 X 25) = 1300 ‘The total amount of the second investment, witich lasts for 24 year, is A, = 500 + 500(0.064 x 24) = 1268 ‘A general formula for the investment made on Sara’s nth birthday is, A, = 500 + 500(0.064 x (25 ~ n)) Including the investment on the day Sara was born, there are 26 investments. You can use a spreadsheet and the general formula to compute the total of all 26: $23 400. Chapter 8: Discrete Functions: Financial Applications) 8.2 Compound Interest: Future. a: Nalue, pp. 490-492. : és Number of Interest Rate per h , | Compounding Compounding Period, i Periods, 1 a) 3X 0054 = 1.027 Sx2=10 »| dxcow-oon | sxia—ss ° 4 0029 = 0.00725 7x 4=28 1 10 1 a) 5g * 0.026 = 2% 2-45 2. a) i) (ist year) A=P(l +r) (nd year) A= to720(1 + 60720) (Grd year’) A= 11491.84(1 + 0.072(1)) = $1231925 Cath yea) A="1231925(1 + 0072)) = $1320624 (Sth year), A = 13 206.24(1 + 0.072(1)) = $14 157.09 ii) A(n) = PC + if = 10 000(1.072)" b) i) (ist half-year) A=P(L +r) }0.000(1 ++ 0.019(1)) = $10190 (2nd half-year) A= 10190(1 + 0.019(1)) = $10383.61 Grd half-year) A = 10383.61(1 + 0.019(1)) = $10580.90 (4th half-year) A = 10580,90(1 + 0.019(1)) = $10781.94 (Sth half-year) A = 10781.94(1 + 0.019(1)) = $10986.80 fi) A(n) = PO + i" = 10.000(1.019)" ©) i) (Ast quarter) (1+ rt) 10.000(1 + 0.017(1)) $10 170 Nelson Functions 11 Solutions Manual (2nd quartet) A= 10170(1 + 0.017(1)) = $1034289 Grd quarter) A = 10342,89(1 + 0.017(1)) = $10 518.72 Gth quarter) A= 10518.72(1 + 0.017(1)) = $10 697.54 (th quarter) A= 10697.54(1 + 0.017(1)) = $10879.40 fi) A(n) = PC + i" 10.000(1.017)" 4) i) (1st month) A=P(L +r) = 10 000(1 + 0.009(1)) = $1009 (2nd month) A= 10 090(1 + 0,009(1)) = $1018081 Grd month) A= 10180.81(1 + 0,009(1)) = $10 272.44 (4th month) A= 10272.44(1 + 0.009(1)) = $10 364.89 (Sth month) A = 10364,89(1 + 0.009(1)) = $10.458.17 ii) A(n) = POL + i)" 10-000(1.009)" 3a) tmeow1 2 3 9 8 9 10 25758 Ae? 115%/4 compounded anny A = 258(1 + 0.035)" = $363.93 D) rimenow 1 2 ow 2» $5000 ae 1 64%/a compounded semiannually A = 5000(1 + 0.032)" = $17 626.17 ©) Tinenow 1 ae 6 P=sm200 Ant 15 25% compounded quately A = 1200(1 + 0.007)" = $1418.69 Amn ms Teuncenpooddnety sae A= 45 000(1 + 0.005) 4.) A = 4000(1.03) T= 4502.04 = 4000 = $502.04 b) A = 7500(1.005) = T= 10 740.33 = 7500 = $3240.33 85©) A = 15 000(1.006)" = $16 906.39 T= 16 906.39 — 15 000 ~ $1906.39 a) A = 28200(1.0275) = $48 516.08 1 = 48 516.08 ~ 28 200 = $20 316.08 ©) A = 850(1,0001)* = $881.60 1 = 881.60 — 850 = $31.60 £) A = 2225(1.001)7 = $2332.02 I = 2332.02 — 2225 = $107.02 4494404240, S.a) r= ET = 0.085 = 6% 1b) Using the formula for future value, A= P(1 + i)", and the first year’s data, 4240 = P(1.06)' P= 4000 ‘Sima’s original investment was $4000. 6. Using the formuta for future vale, 25.000 = 10.000(1 + 0.006)" 1.006" 154 months = 12 years, 10 months 7, Compute the total Serena will pay for Option t: = 00025 A = 15 000(1 + 0.025)" = $40 275.96 ‘Compute the amount Serena will pay for the first 5 years of Option 2: 2 4 0.03 Ay = 15000(1 + 0.03) = $27 091.67 Use that amount to compute the amount after 5 more years of Option 2: 0.06 = 001s Aq = 27:091.67(1 + 0.015)" = $36 488.55 Serena saves $3787.41 with Option 2: 40 275.96 ~ 36 488.55 = $3787.41 8, Ted's formula is equivalent to the formula for future value: A(t) = 5000 x (1.0075) + 4 4 A= Px (+i ‘The principal, P, is $5000. The interest rate, é is 12 x 0.0075 = 0.09, or 9%/a, Interest is. compounded monthly. 86 9. Conipute the total Margaret pays under Plan A: Ag = 949.99 + (949.99 x 0.10 2) = 949.99 + 190 = 1339.99 ‘Compute the total she pays under Plan B: Ay = 949.99(1 + 0.0125)* = 1049.25 Margaret will pay $290.74 less under Plan B. 10. A = 1000(1 + 1.05)? = $1407.10 11. Compute the value after the first 3 years: Ay = 9000(1 + 0.025)" = $12 104.00 Use that value to compute the value after the next 2 years: Az = 12 104(1 + 0.045)* = $14 434.24 12, Suppose Cliff invests P dollars for n years. ‘The future value for the first option is, A, =P + (PX 01 Xn) ‘The future value for the second options is Ay = P(105Y" Use a spreadsheet or a calculator to find the ‘year, n, in which the future values are equal: P+ (PX 01 Xn) = P(105)" 1+ 0.n = 1.05" n= 26 Por the first 26 years, the first option is better. After that, the exponential growth of the second ‘option makes it a beiter choice. 13. For example, how long will it take the following two investments to be worth the same amount? a) $5000 at 5%/a compounded annually }) $3000 at 7%/a compounded annually ‘A, = 5000(1.05)" ‘Ay = 3000(1.07)" ‘Chapter 8: Discrete Functions: Financial Applications‘The two investments are the same after approximately 27 years: Compute the balance after the second year: 0.042 4 0.0105 Ay = 4162.42(1 + 0.0105)* = $4340.01 Compute the balance after the third year fs 4 oon Ay = 4340.01(1 + O.011)4 = $4534.14 17, Compute the balance on Rachel’s Sth birthday: Ay = S0O(1 + 0,004)" = $635.32 ‘Add $500 to the balance and compute the balance on Rachel’s 10th birthday: Az = (635.32 + 500)(1 + 0.004) = $1442.58 Add $500 to the balance and compute the balance on Rachel's 15th birthday: Ay = (1442.58 + 500)(1 + 0.004) = $2468.32 Ada $500 to the balance and compute the balance on Rachel's 18th birthday: Ay = (2468.32 + 500)(1 + 0.004) = $3427.08 Ble ae T1000 [525000 | 204000. 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Compare the future value of a one-dollar ‘investment after one year to rank the rates: ‘Compound Rate | ine period Future value (6.5% [quarterly TOI6S" = 1,067651545] [6.559¢|semi-annually] 1.03275" = 1.066572563] [6.45%|monthly 1.005375" = 1.06644i361 [6.6% Jannualiy 1.066 15, Compute Anna’s balance on July 1, 2001 A, = 2000(1 + 0.005) = $2697.70 Now use that value to compute the balance on January 1, 2008: Ay = 2697.70(1 + 0.02)" = $4514.38 16. Compute the balance after the first year ft eae = 001 Ay = 4000(1 + 0.01) = $4162.42 Nelson Functions 11 Solutions Manual 19, There are 20 investment periods in Anita’s savings plan, Each period, she adds $500 to the balance, The first $500 is invested for all 20 periods, so the future value of that $500 is A, = 500(1.034)" = $975.85 ‘The second $500 is invested for 19 periods, so the future value of that $500 is Az = 500(1.034)'® = $943.76 A general formula for the future value of the nth $500 investment is = 500(1.034)""-"You can use a spreadsheet and the general formula to compute the total future value: Se ez Li 2 500. 9486. sf 509) sa co 509, ‘e271 i 509) a9 [sf 500) a3 7s 500) 73647 ar 500, 73k role. 500) 7682 16] 9. 500, 7236 1] __ 0 [soo 831 2 500) 35 Blo. 500, 65333 m3. 500, 85 1g] 500) ‘hor fists 500, 33098 a]. 500) ‘sms 1 55275 ps] 509) 58 Ze 509, 51700 20 soo | 30000 aE 3995.44 Anita will have $13 995.44 after 10 years. 20, a) The future value of a one-year investment at 6.3%6/a compounded semi-annually is P(1.0815)?, Set this equal to the sarne investment at a rate, 7, that is compounded annually, and solve for é P(1.0315)? = P(1 + i)! 1.0315? = 1-4 1.0640 = 1 +3 1% 0.0640 = 640% 1b) The future value of a one-year investment at 4.2%/a compounded monthly is (1.0035), Set this equal to the same investment at a rate, J, that is compounded annually, and solve for i P(1.0035)? = PCL + a 1.0035 = 1 +i 1.0428 +1 +i i= 0.0428 = 4.28% ©) The future value of a one-year investment at 3,2%/a compounded quarterly is P(1.008)*, Set this equal to the same investment ata rate, /, that is compounded annually, and solve for i: P(1,008)* = P(1 + i)! 1.008 = 1 +i 10324 = 147 i+ 0.0324 = 3.24% a8 100 000 b) PY = Grgaay * 973 65081 23.000 ©) PV = Tropa ~ 1050647 2500 & PY = Tagssyam ~ 89-45 2, Compare the present value of Kevin's invest- ‘ment to the present value of Lui’s investment: 10000 PV = Ziggy $3768.89 10000 _ PV. = Ggpaye = 9283627 Lui would have to invest more money than. Kevin to reach his goal 10.000 3.8) PV = Gog = 9792084 1 = 10.000 ~ 7920.94 = $2079.06 6200 b) PY = panye = S487L78 1 = 6200 — 4871.78 = $1328.22 20.000 PY = Forays = $8684.66 1 = 20000 ~ 8684.66 = $11 315.34 12.800 © PY = Zoggsyam = $8776.74 12.800 ~ 8776.74 = $4023.26 4.1 = 0.072 n=s A Tay py — 12033.52 PV = Tramps ~ 9850000 5, Compute the present value of Nazit’s loan ny a 2429-50 PY = Trae) 7 $1000.00 ‘Adz the $900 that he seved to the present value of the loan to find the cost ofthe TV: $1900.00, 15.000 Tansy = 8558646 7. Working backwards from Colin's third snd final payment, _ 000 0179" 6.PV 3506.45, PV; Chapter 8: Discrete Functions: Financial ApplicationsVY wy £5000 + 3506.45) 2 rT = $738087 (5000 + 738087) _ PY, = (LOT79) = $10 006.67 6000 & 2500 a+ 2500(1 + iy” = 6000 (1 + iy = 240 Hae 1.02212 0.02212 ‘The annual rate is 4i, 4i = 0.08848, which rounds to 8.85%, 9. iy = 0.069 m=H A te iy 25 000 = Gggnys = $3377.60 ry 00575 ma = 360 py=2—A_ ary 25000 PV = Trogs7s)x6 = $3173.40 Franco invested $204.20 more than David. 10. Working backwards fiom Sally's second investment, _ 1478456 _ 2 Goong = 9968522 ry, = $635.22 PM, = Gage ~ $7200.00 11. a) First find the present value of the invest- ‘ment with the 5-year guarantee. Working back- wards from the last 20 years of the investment, 25.000 Gon = $1127795 1127.95 SS 56 Cooay ~ $9616.56 Now find the present value of the investment with the 8-year guarantee. Working backwards from the last 17 years of the investment, $10741.82 PY, = $8324.17 Steve should choose the investment option with the 8-year guarantee because it requires «smaller initial investment. Nelson Functions 11 Solutions Menual b) As shown in a), Steve needs to invest $8324.17, 12. Present value is an exponential function with ratio (1 + 1) so the amount decreases the farther you go into the pas, just like the amount of radioactive material desereases as time goes on, 13,5009 = 12000 0272" o.02785 ‘The annual rate is 4i, 4i= 0.1114, which rounds to 11.14%. 15. Compute the total payment amount and substitute it into the present value formula 'o find the amount originally borrowed: A = 30(268.17) = $8045.10 PV= jo $4997.12 The original amount borrowed is $4997.12. The total of the payments is $8045.10. So the total interest paid is the difference, $3047.98, 16. Start with the formula for future value of an investment earning simple interest, A = P + Prt Write PY for P, n for t, for r. Solve for PV: A= PV + (PY xin) A= PV(L+ in) A peat ‘Mid-Chapter Review, p: 503” 1. a) J = 5400 x 0.067 * 15 = $5427.00 A = 5400 + 5427 = $10 827,00 br 400 x 0.096 x 18 - s51.20 A = 400 + 5120 = $451.20 ©) 1 = 15 000 x 043 x = $3300.00 A = 150000 + 3300 = $18 300.00 a9150. = 25i ce 4) 1 = 2500 x 0.271 x 35 = $278.42 A = 2500 + 27842 = $2778.42 2. 1200 = 5300 x 0.072 Xt 1200 = 381.61 1 ® 3.145 years = 3 years, 33 days 3.) 1079.20 ~ 1014.60 = $64.60 1) 1014.60 ~ 64.60 = $950.00 oy r= BS = 0.068 = 68%/m oF 81.6%/0 4a) A= 6300(1 + 0.049)? = $8805.80 7 = 8805.80 ~ 6300 = $2505.80 b) A = 14 000(1 + 0.044)" = $34 581.08 7 = 34 581.08 — 14.000 = 20 581.08 ©) A = 120000(1 + 0.011)" = $822 971.19 1 = 822,971.19 — 120.000 = $702 971.19 d) A = 298(1 + 0.057)' = $415.59 I= 41559 ~ 298 = $117.59 5, 34.000 = 15.000(1.006)" 1.006" = 2.2667 ‘n= 137 months = Ii yeats, 5 moniths 6, Sara finances $1612.00. Using the formula for future value, 2112 = soos + 4) (+2) «1107 $ 3 1+ 5 = 10002 57 0.0923 1 = 0.18845 = 18.85%/a 0.023 100 eee ary 25 000 PV = 7 ygias = $2572.63 8.1 = 0.087 n= 130 vat 39 382.78 = Type 7 $350.00 9, a) The interest rate remains constant. So use. the first two statements to compute the rate: 810 [= 9125.56 — 8715.91 409.65, © 871591 i= 0,094 = 9.4%/a 8715.91 roar ~ 8832465 = 0,047 vin b) PV = 84 Annuities: Future Val pp.511-512. 1. a) (st invest) FV = 2500(1.082)* = $16 $72.74 (2nd invest) FV = 2500(1.082)" = $15 316.76 Grd invest) FV = 2500(1.082) = $14 155.97 (Ath invest) FV = 2500(1,082)"" = $13 083.15 ) The values form a geometric sequence with ‘a common ratio of 1.082. 1.0822 ©) FV = 2500 x HF = $188 191.50 1.003 —1 2.) FV = 100 x AE = g167 77898 by FV = 1500 x LOSS" $146,757.35 ©) FV = 500 x = $9920.91 a) FV = 4000 x $49 152.84 0.045 3. The future value of Lois’s annuity is $59 837.37: 1.023 — 0.023, ‘The total of her investments is $32 500: 50 x 650 = $32 500 ‘The interest earned is the difference: 59 837.37 — 32.500 = $27 337.37 EV = 650 x v= nx (enn) 1.0045 ~ 1 (0.0045 FV = 125.43 x= 4889.90 5.a) FV = = $20 051.96 1.018° - ome b) FV = 250 $1569.14 Chapter 8: Discrete Functions: Financial Applicationsb) Compute the future value of Anita’s $79 308.62 investment using Sonja’s monthly payment: 1.0099 = 4 FV = 305.19 x Te $57 347.07 426 980.31 ‘Compare that future value to the original a future vah 6.1) 1.000 000 = Rx LOST = 1426 980.31 — 500 000 = 926 980.31 0.0085 ‘Anita will have $926 980,31 more. 8500 = R x (1.0085 = 1 y™ Ra Saas : 10,25 000 = 150 x G4 OR = 1 1.008258 — 1 a4y™=1 1b) 1000 000 = R x “Fase asa! 4250 = R x (1.000425) = 1 R = $638.38 7. The total of Kiki’s regular payments is the same for all four options. The rate of compound interest is the same for all four options. The only difference is the compounding period, In this ease, the fist option is the best because it compounds monthly, the most frequent of the options. 052 Bia? 0013 R= 250 FV = 6500 FV=RX (rey 1.013 ~ 1 6500 = 250 x “Fe 84.50 = 250(1.013" ~ 1) 0.338 = 1.013 = 1 1.338 = 1.013 dn = 22.54 n= 5.64 years ~ 5 years, 7 months 9, a) Compute Sonja’s regular payment: 500 000 = rg x BOSS 1 § "0.0055 Ry = 106.94 Compare the regular payments: 305.19 = 106.94 = 198.25 Sonja must invest $198.25 moze per month. Nelson Functions 11 Solutions Manual en12. a) Set up a spreadsheet to compute the balance after every payment: 13. Set up a spreadsheet to compute the balance after every payment. Try different payment The balance is close to zero after 44 payments, which is 3 years and 8 months. b) Compute Carmen’s total payments, keeping in mind that her last payment will be less than $250: (43 X 250) + (168.30 + 0.67) = $10 918.97 ‘The total interest is the difference between the (otal payments and the original loan amount 10 918,97 ~ 10.000 = $918.97 a2 ee ae amounts. After 20 years of monthly payments of $924.32, the balance is near zero: aes ‘ooo0co | |=} 1 [a [se reas sr8000] | [x0 [sis | “nose | some] —— EE 7 re “aero oe [i {30 [ar [mss oes] 3 [os | o7sie | aioe [aso3o0 3 [so ea [ase [omer | Fe 3 [ease |r | —as055 [sane Co ont | oras9 | —aaisy [0001 a S| suse |“ erioo | —as30 | tar [wo [os [as [ever |e CE TO 3 [0 [a [near [sores] fy 7 [vans | esac | — sai | taser ET TS | s1as7-|s6600 | ase [ovr wf aso [sas [ns | reese | Sma} 66538 | —asaoe | Dono ve [0 | sos faa {sat | pio | vzase | —cen96 | 20036 | ois i Bee [3570 [nos | mosst | fy] ome [eens | —aanr9 | nonre bas. Pee es ee eer eee a Bf man | 66109 | 263.23 | noes cE ET x BT | Faso [aes aes [aaa | as [onan | ese [ana | ania auf ig Faso fas | aaers | ecae70 | fig] ae |~panae | esnas | “aenor | ancron a EM aa a0 | as | aaas [anes [508680] fan] ie | ones [os [aoe | reas aif a | aso [ass [ras [scons | Far io | onaae | oso | arse [raciagr E21 TN OM 3 Eo EM ea 2} 250 fest | ow [a fa) Be [spe | 6625 | 27807 | Timms Bes [aso ge Fue [one | fas} as ona [ona [arco | sas Es a bs By | 50 [rox | —na97 [400509 [a] 20} 60 | a0 | ya af [ao [sie [tee [38636] fa a ee ee Bf so [so eas srr nose | pa ao | oan [si [era | 058 f3[ | aso sae [ase [sos | ita [sins | ena | eso | “coro pee | so fas [nee | aeie20 | laa onase [ans | eran [moa 3s}___3 [ao | ase | nar [neers] R} 2 Less | eee | oe CE TT ays Taso 9a arose [aad | fay ase [ana | 990" | estan | a. 8[ 36 [50 [sr Tatas [00800] st ane [eae | are | eon | Seana fw so [ass (aaae | ese) big ar | nam | 200s [bona [par EE ES EE ES ale [0 [ae | aesve [oat] apy 200 | ae | 503 | 929 ae fag] ar | 250. | san [ae | ee EE EE TC [8 | 250] ar | as | ees ae] 250 [067 [aes [sor “9.007 1.7 = 1.007" n= 76 payments ms: Financial Applicationscompounded annually Compounding O01 2 aos Peres Payment $0. $650 $650 Prezent voloeof och payment 5650 oom 5659 room $650 650 3 roomy $650 fi) PV = 650(1.037)~* + 650(1.037)? + 650(1.037)7 + ++ + 650(1.037) * it) PV = 650 x = $2918.24 = $3250 to compute 0.037 iv) Compute the total paid: 650 x 5 Subtract the present value from the total interest paid: 3250 ~ 2918.24 = $331.77 conpaatng wee T-c007 exe <—— Tenor reco tar Nelson Functions 11 Solutions Manual So sou socrseans 125 1b) i) There ate 18 payments (9 x 2): i = 9.4%/a compounded semi-annually conpoundne ° } aHee : Payment $0 $1200 S200 $100 $00 reser wo of ‘ichpaynert "200 ja0m 1100 reonp Gaonp reer ‘s200 $1200 S100 L roo 200 ireenp 1700 room fi) PV = 1200(1.047)~* + 1200(1.047)- + 1200(1.047) > + -- + 1200(1.047)-" 047-8 0.047 iv) Compute the total paid: 1200 x 18 = $21 600 Subtract the present value from iif) to compute the total interest paid: 21 600 ~ 14 362.17 = $7237.83, PV = 1200 x = $14 362.17 1 ©) There are 14 payments (§ x 4) 3.6%b/a compounded quarterly {S047 S17 47 Goa SUD SoU SLfi) PV = 84.73(1.009)"* + 84,73(1.009)* + 84.73(1,009)-? + += + 84.73(1.009)-"" 1 = 1009" ii) PV = 84.73 x “2a — = $110985 fers Hilinco SREP hea ooo jooony 0. rons Pr Too TrooosF i) PV = 183.17(1.0055)"* + 183.17(1.0055)? + 183.17(1.0055) 9 + + 183.17(1.0055)-™ iit) 1.0055-° 0.0055 iv) Compute the total paid: 183.17 x 120 = $21 980.40 ‘Subtract the present value from iii) to compute the total interest pai 21 980.40 ~ 16 059.45 PV = 183.17 x $16 059.45 PV, = 8000(1.09)"? = $6733.44 8000(1.09)~* = $6177.47 8000(1.09) "4 = $5667.40 $5199.45, $4770.14 $4376.27 84 iv) Compate the total paid: 84.73 X 14 = $1186.22 Subtract the present value from iif) to compute the total interest pai 1186.22 ~ 1109.85 = $76.37 4) i) There are 120 payments (10 x 12): i = 6.6%6/a compounded monthly ° © LPGEEERS ES uo Jl) PV = 8000(.09)"* + 8000(1.09)* + 8000(1.09)"> + + 8000(1.09)"7 11097 ii) PV = 8000 x — = $40 263.62 1b) i) PV, = 300(1.04)* = $288.46 PY, = 300(1.04)? = $2737 PV = 300(1.04)* = $266.70 PV, = 300(1.04)"* = $256.44 PV, = 300(1,04)* = $246.58 PV, = 300(1.04)-® = §237.09 PV, = 300(1.04)~7 = $227.98 ) PV = 300(1.04)* + 300(1.04)? ++ 300(1.04) 9 + +++ + 300(1.04)77 = 1.047 1 Ait) PV = 300 x 5 -— = $1800.62 Chapter 8: Discrete Functions: Financial ApplicationsWS ©) i) PY, = 750(1.02)" PV, = 750(1.02)"* = $720.88 PVs = 150(1.02)~* = $706.74 PV, = 750(1.02)"4 = $692.88 3679.30 $665.98 $652.92 $735.29 PV, = 750(1.02)~ PVg = 750(1.02)"* = $640.12 fil) PV = 750(1.02)* + 750(1.02) + 750(1.02) 9 + +» + 750(1.02)* iii) PV = 150 x L1E2™ ~ gsaoq.1 0.02 3.) R = 5000 i= 0.072 nes py=rx(G-G40) $20391.67 py= rx (C= 040) PV =250 x 24 = $4521.04 9 R= 2550 i= 0.001 n= 100 py=nx(2-C+0")) Py = 2550 x @ R= 4850 i= 00195 n=30 py=rx (S249) 110195" py = 4830 x ALES « s1o93.73 ois 4.1300 = px LALO R= $64.90 5. a) Lily makes 16 payments: i = 10%/a compounded quarterly Nelson Functions 11 Solutions Manual roar 1) 7500 = R(1.025)"* + R(1.025)? + R(1025)9 ++ + R(LO2S) "6 1 = 1.025 ©) 7500 = Rx Se R= $574.49 6, a) Calculate the present value of the loaned amount: - = 1.015" Sais 7 836889 ‘Add the $50 down payment that Roceo made: 368,89 + 50 = $418.89 }b) Over 10 months, Rocco pays $400, exclud- ing the down payment. He borrowed $368.89. ‘The difference, $31.11, is the amount of interest Rocco paid, _ 1 = 1.0065-* 7.128 000 = Rx Sy R= $971.03, 8, a) The Pecas are financing $64 000. Compute the monthly payment for the 7-year loan, There are 84 payments: 0.01 4 PV=40x py= ex (Gabeo"y L-101-* 0.01 64.000 = Ry x Ry = $1029.70 815‘Compute the monthly payment for the 10-year Joan, There are 120 payments: i= 001 n= 120 pvaax(S 1) 1 = 101-1 64.000 = RX 3a Ry = $810.72 b) Compute the amount of interest they pay for the 7-year loan: Ay = 1029.70 X 84 = 86 494.80 J, = $86 494.80 - 64.000 = $22,494.80 ‘Compute the amount of interest they pay for the 0-year loan: Ajo = 810.72 x 120 = 97 286.40 Iyy = 97 286.40 ~ 64.000 = $33 286.40 ‘The shorter term loan saves the Pecas $10 791,60 in interest. 9. Charles will pay $552.60 per month for 60 months if he borrows $29 000 from the bank to pay fr dhe car in cash: 1 = 1.0045 29000 = Rx Tae R = $552.60 Tf Charles finances the full $32 000 at the dealership, he will pay $566.51 per month for (60 months: 1 = 1.002-® 32000 = Rx Fane R= $566.51 Since both deals are for the same number of ‘montis, the bank-financed deal, which is less pet month, will cost Charles less. 1 = 1.007-° 0.007 10. a) 35.000 = Rs x Ry = 716.39 35.000 = Ry X Ry = 432.08 35.000 = Ris x Rs = 342.61 b) Js = 60(716.39) — 35 000 = $7983.40 yg = 120(432.08) ~ 35 000 = $16 849.60 ‘hs = 180(342.61) — 35 000 = $26 669.80 8.16 11. a) Calculate the present value of the loaned amount: o1ss- 0.0155 ‘Add the $45 down payment to get the price of the stereo: 271.84 + 45 = $316.84 b) Pedro financed $271.84. Compute his total payments 12. 25 = $300 ‘The total interest is the difference: 300 ~ 271.84 = $28.16 12. You can use a spreadsheet to find an interest rate for which monthly payments of $75.84 leave a near-zero balance after 30 months. PV =25x $271.84 SIs TEE Tse [se Sse. Laser a[ 7 see W]e | see ni] —3 | see af 0 | 5a pat a | 750, E] 3] er ep [see ie} Laser hit | 6 [00 ef | 780 fo[ we | 760 ait | ree asf ar | 738 pala | 7560 | __B | 76 Hs} ae | ee rf 3s | 00 waa | sia. en an [29.58 | _77 | 7a0e Tim | m0 So] 8 | 750 73s wei Si] 29 | 7500 hap | mar se 30 | 7500 74a | 004 An interest rate of 19.00%6/a results in a neat zero balance after 30 months. 13. Calculate how much Leo will have in his retirement account after 20 years: A = 50 000(1.028)" = $455 427.42 Chapter 8: Discrete Functions: Financial Applications) Use the TVM Solver on a graphing calcula- tor to determine the number of payments that will be required if payments of $500 are made every two weeks (26 payments per year). Approximately 433 payments will be required. Since there are 26 payments per year, it will take about 16,65 years fo repay the loan. ©) Use the TVM Solver on a graphing calculator to determine the number of payments that will be required if payments of $250 are made every week (52 payments per year). aes Dee Approximately 865 payments will be required. Since there are 52 payments per year, it will take about 16.63 years to repay the loan. Nelson Functions 11 Solutions Manual 14, It will take 5 years and 2 months to pay off the loan: i : if sara fate | 50 Safe | 0 [| — [5s] 30 | san yes 35887 a nce? [so] ——38"| Saaz fat| 6s ou rat 0 | 60 oY ra]_—ar] 60 ed 3] 3 | 0 | 2sKor — ie fg] | 0 To — eats a Tent Sef [0 186 a a eB —9 | 0 — a 8-25534-535 3500 (0.06)(10) = $2100.00, 3500 + 2100 = $5600.00 b) J = 15 000(0.11)(3) = $4950.00 ‘A = 15.000 + 4950 = $19 950 ©) 1 = 280(0.082) A = 25.39 + 280 = $305.39 a= ss0(020)( 2) = $474.04 A = 474,04 + 850 = $1324.04 2 er=21 ovooor(2) = $176.40 A = 176.40 + 21000 = $21 176.40 2,.a) 11.25 asco0n(: 4 ) 2 i= 0.054 = 5.4% b) A = 2500 + 84(11.25) = $3445.00 6) 5000 = 2500 ++ 2500(0.054)r 1 © 18.5 years = 18 years and 6 months 3, a) Karl borrowed $5000. 1b) After 2 years the total is $6000, so the amount Of interest is $6000 ~ $5000 or $1000. ‘The $1000 5 $500. amount of interest per year is 500, “= "5000 OL = 10% ©) $20 000 — $5000 = $15 000 Since the anount of interest per yea is $500, 1s 000 5000 it will take or 30 years before Karl owes, $20 000. 4. 10.000 = 4350(1.019)" 10.000 as = 21" n= M2 It will take about 11 yeats. 5. a) A = 4300(1,091)° = $8631.11 T= 8631.11 ~ 4300 = $4331.11 b) A = 500(1.052)* = $1604.47 1 = 1604.47 — 500 = $1104.47 ©) A = 25 000(1.016)" = $30 245.76 1 = 30.245.76 ~ 25.000 = $5245.76 8:26 3107(1.023)” = $607.31 607.31 ~ 307 = $3031 6.a) At the end of the first year, Deana earns {$400 in interest. So if i isthe interest rate and P is the principal she invested, 400 = Pi At the end of the second year, she eams $432 in interest. 432 = (P + 400)i 432 — 4008 Substituting $400 for Pi, 400 = 432 ~ 4008 0.08 = 8% b) Substituting 0.08 for é, 400 = 0.08P P= $5000 : 7. Caleulate how much Vlad financed: 2942.31 ~ 850 = $2092.37 Substituting into the formula for future value, 2147.48 = 2092.37 (1 + i)" 147.48 2092.37 1+ i 1001s 1% 0.001445 per compounding period Multiply by 12 to find the annual rate because the compounding period is monthly: G+i%= i= 1LB%/a 8000 8.9) PY = FOO © 8578453 1280 by Pv = aa = $108207 100.000 9 Py = Toe = 864089.29 850 @) PY = aah = $589.91 847.53 . py = S253 9, PY = ATES = $067.33 2262.70 10,1650 = Fy 5, 2262.70 Ciao ies 1 += 1110 i= 0.1110 = 11,10%/a 1.076 AL, a) FV = 2500 x Te = $46 332.35 46 332.35 ~ (2500)(12) $16 332.35 ‘Chapter &: Diserete Functions: Financial Applcations1.036" ame = 91330697 T= 13 306.97 ~ (500)(19) = $3806.97 1.01075" = 1 ©) FV = 2500 x "Fo aaa = $31 838.87 J = 3183887 — (2500)(12) = $1838.87 101" —1 12, 100.000 = 1500 x b) FV = 500 7333 50.28 compounding periods It will take about 12 years and 7 months for ‘Naomi’s account to reach $100 000. 13. i= 00075 2 FV = 25.000 rv=rx(f aso ») 1Loo7s” 25000 = x x LOTSA R= $263.14 = 1051-2 14.) PY = 450 x EEE ~ gpa76.78 1 = (450)(12) — 2276.78 = $423.22 by pv = 2375 x LEMS” «517 155.88 D046 1 = (2375)(9) ~ 17 185,88 = $4189.12 ©) PV = 185.73 x $= OZ _ s0969:70 0.032 1 = (185.73)(14) ~ 2069.70 = $530.52 4) pv = 10527 x L=1OIE™ _ sueasas 0.016 I= (105.27)(18) ~ 1635.15 = $259.71 1055-20 15, ) 136000 = R x Soe R= $1022.00 1b) Calculate the total of Paul’s payments: 1022, x 240 = $245 280 ‘The total interest is the difference between the total payments and the present valve: 1 = 245 280 — 136.000 = $109 280 Nelson Functions 11 Solutions Manual 16, Eden’s balance is $0.00 after 30 months when she pays 20.4%/a interest Br aay 27 fey ar we a. 3] | 7 3 | 3448 [sto pi] [617 [or | 30 | a5 i 1225.47 = RX R = $29.12 18, Ken saves for 35 years, which is 420 months. Calcnlate the future value of Ken’s investments: 1.0045 ~ (0.0045 ‘When Ken is 55, his account will be valued at $124 252.52. Adam saves for 18 years, which is 216 months, Calculate the monthly payment Adam must snake in order for his account to be worth $124 252.52 at age 55: Loos — 124252.52 = RX Tae R= $282.34 Adam must save $182.34 more per month than Ken saves. 19, Use a spreadsheet to compare the amortiza- tion periods. If Jenny pays $1000 each month, the balance will be near zero after 124 months, or 10 years, 4 months: ADRs aE FV = 100 x Fae] ar — soo 799 01 | o9asT a CO 8.27If Jenny pays $1500 each month, the balance will be near zero after 76 months, or 6 years, 4 months: ‘| 6a 6009009 “iss | pea see a ee a |_| eo: | ig | ver | oss a ‘The higher payment will shorten the amortiza- tion schedule by 4 years. 1 = 1.0025 py = 1795 x 0.0025 ‘Chapter Selftest)p. 536 = 1.4) = 850(0009)(6) = $4 Het 459.00 ‘A = 850 + 459 = $1309.00 10 $1979.06 b) A = 5460(1.042)* = $15 913.05 1 = 15 913.05 — 5460 = $10 453.05 1.004” — 1. A = 230 x Ta = $21 005.02 1 = (230)(78) — 21 005.02 = $3065.02 2, u) For Loan 1, simple interest is being, charged; there is a common difference in the amount owed from month to month. For Loan 2, compound interest is being charged; there is a common ratio in the amount owed from. month to month. ) (Loan 1) Calculate the amount of interest charged each month: So the original amount borrowed was $3650: 3796 — 146 = $3650 Calculate the interest rate: 146 i 5659 ~ 008 = 4% (Loan 2) Write the present value of the loan ‘using the numbers for the second year: 97753 Vy = vec 8-28 ‘Write the present value of the loan using the ‘numbers for the third year: 1036.18 “a+ Set them equal to each other and solve fori 97153 _ "1036.18 ate G49 1036.18 97783 = FF pj = 103638 977.53 1036.18 77.53 1 = 0.0600 = 6.00% ¢¢) As calculated in b), Loan 1 was $3650.00. Caleulate the present value of Loan 2: S753 _ $870.00 Pye 108 @ (Loin 1) A = 3650(0.04)(10) + 3650 5110.00 (Loan 2) A = 870(1.06)" = $1558.04 3.25000 = P(1.023)% P= $12075.91 he= tout n=78 aso pyran (O2020) : FV = 250 x 1004 = $22 831.55 0.008 5, Compare the one-year fature valves of the {wo options. The 5.88% option has 12 com- pounding periods in yea: 1.0049" — 3 M1 = RX Goa = 12329R “The 6.00% option has one compounding pesiod ina year: 0006 = 12245R ‘Simone should choose the option with 5.88%/a compounded monthly. 6. Sct up a spreadsheet to find an interest rate for which the sum of the future values is Chapter 8: Discrete Functions: Financial Applications