1 You are planning to retire in twenty years.

You'll live ten years after re

be able to draw out of your savings at the rate of $10,000 per year. How mu
have to pay in equal annual deposits until retirement to meet your objective
interest remains at 9%.

PV
FV
n 10
r 0.09
PMT 10000
m 1
PV= ($64,176.58)
You have to pay $64,176.58 to get $10000 per year after retirement.
Again,
PV 0.00
FV 64,176.58
r 0.09
n 20
m 1
PMT
Type 0
PMT= ($1,254.43)
The annual deposits would be $1254.43 per year.

2 You can deposit $4000 per year into an account that pays 12% interest. If y
amounts for 15 years and start drawing money out of the account in equal a
installments, how much could you draw out each year for 20 years?

PV
FV
r 0.12
n 15
m 1
PMT -4000
Type
FV= $149,118.86

Again,

n $20.00
PV $149,118.86
r $0.12
m $1.00
PMT= ($19,963.85)

You would get $149,118.86 after 15 years and $19,963.85 pe

3 What is the value of a $100 perpetuity if interest is 7%?

 PV -100
FV
PMT 0
r 0.07
n 1
m 50000
Type 0
FV= $107.25
The value of a $100 perpetuity is $107.25.

4 You deposit $13,000 at the beginning of every year for 10 years. If interest
8%, how much will you have in 10 years?

PV
FV
PMT -13000
r 0.08
n 10
m 1
Type 1
FV= $203,391.34
If you deposit $13000 per year for 10 years, the you would get $203,391.34

5 You are getting payments of $8000 at the beginning of every year and they
another five years. At 6%, what is the value of this annuity?

PV
FV
PMT 8000
r 0.06
n 5
m 1
Type 1
PV= ($35,721)
The value of
getting $8000
per year is
$35,721.

6 How much would you have to deposit today to have $10,000 in five years a
compounded semiannually?
PV
FV 10000
PMT 0
r 0.06
n 5
 m 2
Type 0
PV= ($7,441)
You have to pay $7440 to get $10000 after 5 years.

7 Construct an amortization schedule for a 3-year loan of $20,000 if interest i

Year Beg. Rep Interest Rep of

Balance principle
1 20000 7901 1800 6101
2 13899 7901 1250.91 6650.09
3 7248.91 7901 652.4019 7248.5981

8 If you get payments of $15,000 per year for the next ten years and interest
would that stream of income be worth in present value terms?

PV
FV
PMT 15000
r 0.04
n 10
m 1
Type 0
PV= ($121,663.44)
The present value of getting $15000 per year is $121,663.44.

9 Your company must deposit equal annual beginning of year payments into
an obligation of $800,000 which matures in 15 years. Assuming you can ea
the sinking fund, how much must the payments be?

PV
FV 800000
PMT
r 0.04
n 15
m 1
Type 1
PMT= ($38,416)
The company must deposit $38,416 annualy for the obligation of $800000

10 If you deposit $45,000 into an account earning 4% interest compounded qu

much would you have in 5 years?
 PV -45000
FV
PMT
r 0.04
n 5
m 4
Type 0
FV= $54,909
If you deposit $45000 into an account, you would get $54,909 after 5 years

11 How much would you pay for an investment which will be worth $16,000 in
Assume interest is 5%.

PV
FV 16000
PMT 0
r 0.05
n 3
m 1
Type 0
PV= ($13,821)
You would pay $13,821 for an investment which would be $16000 in three y

12 You have $100,000 to invest at 4% interest. If you wish to withdraw equal a

for 4 years, how much could you withdraw each year and leave $0 in the in
account?

PV -100000
FV
PMT
r 0.04
n 4
m 1
Type 0
PMT= $27,549
To withdraw equal annual payments for 4 years, you could withdraw $27,54

13 You are considering the purchase of two different insurance annuities. Annu
$16,000 at the beginning of each year for 8 years. Annuity B will pay you $1
of each year for 12 years. Assuming your money is worth 7%, and each cos
today, which would you prefer?

Annuity A PV -75000 Annuity B PV

FV FV
PMT -16000 PMT
r 0.07 r
n 8 n
m 1 m
 Type 1 Type
FV= $304,511.78 FV= $383,575.78

You should prefer Annuity B as it has more future value.

14 If your company borrows $300,000 at 8% interest and agrees to repay the l

semiannual payments to include principal plus interest, how much would th
be?

PV 300000
FV
PMT
r 0.08
n 5
m 2
Type 0
PMT= ($36,987.28)
The payments would be $36,987.28 .

15 You deposit $17,000 each year for 10 years at 7%. Then you earn 9% after
the money invested for another 5 years how much will you have in the 15th

PV
FV
PMT -17000
r 0.07
n 10
m 1
Type 0
FV= $234,880
You would get $234,880 after 10 years
Again,
PV ($234,880)
FV
PMT
r 0.09
n 5
m 1
Type 0
FV= $361,391
At the 15th year, you would have $361,3991

16 If you triple your money in 10 years, what interest rate did you earn? What
rate if the money is compounded monthly?

PV -100
FV 300
PMT
 r
n 10
m 1
Type 0
r= 11.61%
The interest rate is 11.61%
Again,
PV -100
FV 300
PMT
r
n 10
m 12
Type 0
r= 0.92% 11.04%
The interest rate is 11.04% for compounded monthly.

17 If you borrow $150,000 for a house at a 8% simple annual interest rate for 3
your monthly payment?

PV 150000
FV
PMT
r 0.08
n 30
m 12
Type 0
PMT= ($1,100.65)
Your monthly payment would be $1100.65

18 A simple annual interest rate of 12% compounded monthly has an effective

PV -100
FV
PMT
r 0.12
n 1
m 12
Type 0
FV= $112.68

19 How long would it take to accumulate $50,000 if you started putting $5 in t

day starting at the end of today at simple annual interest rate of 7.3%?

PV
FV 50000
PMT -5
 r 0.073
n
m 365
Type 0
n= 5493.6107312
15.05
It would take 15(approx) years to get $50000

20 How long would it take to accumulate $50,000 if you started putting $5 in t

month starting now at a simple annual interest rate of 7.3%? What if you st
of each month?

PV
FV 50000
PMT -5
r 0.073
n
m 12
Type 0
n= 680.05070006
56.67
It would take 57 years( approx) to get $50000

21 At 8 percent compounded annually, how long will it take $750 to double?

PV -750
FV 1500
PMT
r 0.08
n
m 1
Type 0
n= 9.0065
It will take 9 years(approx) .

22 What would be the interest payment of a $50,000, 10 years, 12% amortized

of 5 th year?

PV 50000
FV
PMT
r 0.12
n 10
m 1
Type 0
PMT= ($8,849.21)
Year Beg. Balance Rep
 1 50000 $8,849.21
2 $47,150.79 $8,849.21
3 $43,959.67 $8,849.21
4 $40,385.63 $8,849.21
5 $36,382.69 $8,849.21

The interest payment at the end of the 5th year would be $4365.92

23 What would be the repayment of principal of a $50,000, 10 years, 12% amo

end of 6 th year?
Refering to the ques no 22,
Year Beg. Balance Rep

6 $31,899.40 $8,849.21

The repayment principal at the end of the 6th year would be $5021.28

24 What would be the interest payment of a $50,000, 10 years, 12% monthly i

amortized loan at the end of 5th year?

PV 50000
FV
PMT
r 0.12
n 10
m 12
Type 0
Year Beg. Balance Rep
($717.35)
Yearly ($8,608.26) 1 50000 8608.26
2 47391.74 8608.26
3 44470.4888 8608.26
4 41198.6875 8608.26
5 37534.27 8608.26

The interest payment at the end of the 5th year would be 4104.112

25 First National Bank charges 13.1 percent compounded monthly on its busin
United Bank charges 13.4 percent compounded semiannually. As a potentia
which bank would you go to for a new loan?

First
National First United
Bank PV 1000 Bank
FV
PMT
r 0.131
n 5
 m 12
Type 0
FV= ($1,918.32) FV=

You should go for the First united Bank

26 Big Dom’s Pawn Shop charges an interest rate of 25 percent per month on l
customers. Like all lenders, Big Dom must report an APR to consumers. Wha
the shop report? What is the effective annual rate?

PV
FV
PMT
r 0.25
n
m 12
Type
EAR= 0.280731561 0.2807315607
28.07315607

So the effective annual rate is 28%(approx)

27 Tarpley Credit Corp. wants to earn an effective annual return on

its consumer loans of 14 percent per year. The bank uses daily compoundin
loans. What interest rate is the bank required by law to report to potential b

PV
FV
PMT
r
n
m 365
Type
EAR 0.14
Nominal
rate= 13.11%
The interest rate bank is required to report to the potential b

28 How much will $1,000 deposited in a savings account earning a compound

rate of 6 percent be worth at the end of 3 years?

PV -1000
FV
PMT
r 0.06
n 3
m 1
 Type 0
FV= $1,191.02
At the end of 3 years,$1000 would be worth of $1191.02

29 Find the amount to which $1500 will grow in seven years under each of the
conditions:
a. 12 percent compounded annually
b. 12 percent compounded semiannually
c. 12 percent compounded quarterly
d. 12 percent compounded monthly
e. 12 percent compounded continuously

a. PV -1500 b. PV -1500
FV FV
PMT PMT
r 0.12 r 0.12
n 7 n 7
m 1 m 2
Type 0 Type 0
FV= $3,316.02 FV= $3,391.36

30 Find the future values of the following ordinary annuities:

a. FV of $400 each six months for five years at a simple rate of 12 percent,
compounded semiannually
b. FV of $200 each three months for five years at a simple rate of 12 percen
compounded quarterly
c. The annuities described in parts a and b have the same amount of money
paid into them during the five-year period and both earn interest at the sam

a. PV b.
FV
PMT -400
r 0.12
n 5
m 2
Type 0
FV= $5,272.32 FV=
ve ten years after retirement. You want to
00 per year. How much would you
meet your objectives? Assume

($1,254.43)

ys 12% interest. If you deposit such

he account in equal annual
or 20 years?

s and $19,963.85 per year for 20 years then.

10 years. If interest is being paid at

uld get $203,391.34 after the period

every year and they are to last

0,000 in five years at 6% interest

$20,000 if interest is 9%.

Ending
Balance
13899 PV 20000
7248.91 r 0.09
0.3119 n 3
FV

Type 0
m 1
PMT= ($7,901)

n years and interest is 4%, how much

year payments into a sinking fund for

ssuming you can earn 4% interest on

gation of $800000

est compounded quarterly, how

54,909 after 5 years.

be worth $16,000 in three years?

be $16000 in three years

to withdraw equal annual payments

d leave $0 in the investment

uld withdraw $27,549 per year

ance annuities. Annuity A will pay you

uity B will pay you $12,000 at the end
h 7%, and each costs you $75,000

-75000

-12000
0.07
12
1
grees to repay the loan in 10 equal
how much would those payments

n you earn 9% after that. If you leave

you have in the 15th year?

did you earn? What will be the annual

ual interest rate for 30 years, what is

hly has an effective yield of?

arted putting $5 in the bank every

st rate of 7.3%?
arted putting $5 in the bank every
.3%? What if you started at the end

e $750 to double?

ears, 12% amortized loan at the end

Interest Rep of Ending

principle Balance
 6000 $2,849.21 $47,150.79
$5,658.09 $3,191.12 $43,959.67
$5,275.16 $3,574.05 $40,385.63
$4,846.28 $4,002.93 $36,382.69
$4,365.92 $4,483.29 $31,899.40

be $4365.92

10 years, 12% amortized loan at the

Interest Rep of Ending

principle Balance
$3,827.93 $5,021.28 $26,878.12

ld be $5021.28

ears, 12% monthly installment

Interest Rep of Ending

principle Balance
6000 2608.26 47391.74
5687.0088 2921.2512 44470.4888
5336.45866 3271.8013 41198.6875
4943.84249 3664.4175 37534.27
4504.11239 4104.1476 33430.1223

be 4104.112

monthly on its business loans. First

nually. As a potential borrower,

PV 1000
FV
PMT
r 0.134
n 5
 m 2
Type 0
($1,912.69)

cent per month on loans to its

R to consumers. What rate should

28%(approx)

es daily compounding on its

report to potential borrowers?

rt to the potential borrowers is 13.11%.

arning a compound annual interest

 rth of $1191.02

s under each of thefollowing

c. PV -1500 d. PV
FV FV
PMT PMT
r 0.12 r
n 7 n
m 4 m
Type 0 Type
FV= $3,431.89 FV= $3,460.08

rate of 12 percent,

ple rate of 12 percent,

me amount of money
n interest at the same simple rate, yet the annuity in part b earns $101.75 more than the one in
part a over the five years. Why does this occur?

PV c.
FV
PMT -200
r 0.12
n 5
m 4
Type 0
$5,374.07
 -1500 e. PV -1500
FV
PMT
0.12 r 0.12
7 n 7
12 m 60000
0 Type 0
FV= $3,474.55

the one in

It occurs because of the times Interest is compunded.