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Solutions Avec Chapitre 3: $3.1 For Bank A

This document contains solutions to math problems involving calculations of interest rates, compounding periods, and future and present values. Some of the key details include: - Calculating effective annual interest rates for banks with different compounding periods. - Determining future and present values over different time periods using quarterly, monthly, and annual compounding. - Choosing between investment options based on calculations of future values. - Solving for unknown variables like interest rates, payment amounts, or time periods. The document provides step-by-step workings and conclusions for over 20 different mathematical word problems involving concepts like simple and compound interest, present and future value, and effective annual rate calculations.

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165 views8 pages

Solutions Avec Chapitre 3: $3.1 For Bank A

This document contains solutions to math problems involving calculations of interest rates, compounding periods, and future and present values. Some of the key details include: - Calculating effective annual interest rates for banks with different compounding periods. - Determining future and present values over different time periods using quarterly, monthly, and annual compounding. - Choosing between investment options based on calculations of future values. - Solving for unknown variables like interest rates, payment amounts, or time periods. The document provides step-by-step workings and conclusions for over 20 different mathematical word problems involving concepts like simple and compound interest, present and future value, and effective annual rate calculations.

Uploaded by

azizhaggar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Solutions

avec *
Chapitre 3


$3.1* For Bank A:


r = 15%, M = 4, ia = (1 + 15%/4)4 1 = 15.865%

For Bank B:
r = 14.8%, M = 365, ia = (1 + 14.8%/365)365 1 = 15.948%

Statement (c) is incorrect because Bank B charges a higher annual
effective interest rate.

$3.2* N = 4 X 10 = 40 quarters
A = $2,500
iq = (1 + 9%/12)3 1 = 2.267% per quarter
F = $2,500 (F/A, 2.2669%, 40) = $160,058

$3.3* im = 9%/12 = 0.75% per month
N = 60 months
N n = 60 24 = 36 months
A = $10,000(A/P, 0.75%, 60) = $208
B24 = A(P/A, 0.75%, 36) = $6,541

$3.4* Option 1:
iq = 6%/4 = 1.5% per quarter
N1 = 4 X 10 = 40 quarters
N2 = 4 X 15 = 60 quarters
F1 = $1,000(F/A, 1.5%, 40)(F/P, 1.5%, 60) = $132,588
Option 2:
ia = (1 + 6%/4)4 1 = 6.136%
F2 = $6,000(F/A, 6.136%, 15) = $141,111
F2 F1 = $8,523
Statement (b) is correct.

$3.5* P = $18,000 $3,000 = $15,000


N = 36 months
r = 6.25%, M = 12
im = 6.25%/12 = 0.5208%
The monthly payment A = $15,000(A/P, 0.5208%, 36).
Statement (c) is correct.

3.6* N = 6 months
i = (1 + ia)1/2 1 = (1 + 12%)1/2 1 = 5.83% semiannually.
P = $1,000(P/A, 5.83%, 6) = $4,944
3.7* F = 2P, N = 5 years
F = P(F/P, ia, 5) = 2P
(F/P, ia, 5) = 2, ia = 14.87% per year
iq = (1 + ia)1/4 1 = (1 + 14.87%)1/4 1 = 3.526% per quarter
r = iq X 4 = 14.11% compounded quarterly

3.8* r = 9%, M = 12
iq = (1 + 9%/12)3 1 = 2.2669% per quarter, N = 3 X 4 = 12 quarters
F = $1,000(F/A, 2.2669%, 12) = $13,615.

$3.9* M = 12, im = 1.8% per month
ia = (1 + 1.8%)12 1 = 23.87%
3.10* r = 8%, K = 4 payment periods per year
iq = er/K 1 = e8%/4 1 = 2.02% per quarter
N = 5 X 4 = 20 quarters
P = $1,000(P/A, 2.02%, 20) = $16,320

3.11* r = 9%, M = 12, N = 36 months
im = 9% 12 = 0.75% per month
P = $30,000 $5,000 = $25,000
A = $25,000(A/P, 0.75%, 36) = $795


3.12* r = 12%, M = 12, im = 12% 12 = 1%
P = $100,000 $30,000 = $70,000
P = A(P/A, i, n)
$70,000 = $1,000(P/A, 1%, n), (P/A, 1%, n) = 70
n = 121 months

$3.13* A = P(A/P, i, N)
$922.90 = $20,000(A/P, im, 24)
(A/P, im, 24) = 0.0461
im = 0.83%

B12 = A(P/A, i, N n) = $922.9(P/A, 0.83%, 12) = $10,500

3.14* P = A(P/A, ia, N)
$20,000 = $5,548.19(P/A, ia, 5)
(P/A, ia, 5) = 3.6048
ia = 12%

3.15* F = 2P, r = 9%, M = 4, N = number of quarters
iq = r M = 9% 4 = 2.25%
F = P(1 + iq)N = 2P
(1 + 2.25%)N = 2
N = 31.15 quarters = 8 years

$3.16* ia = 8.87%, M = 365
r = [(1 + ia)1/365 1] X 365 = 8.50%

$3.17* r = 8%, M = 1, ia = r = 8%
X = $1,000(F/P, 8%, 4) $100(F/P, 8%, 3) $300(F/P, 8%, 2)
$500(F/P, 8%, 1) = $345

$3.20
Nominal interest rate:
r = 1.25% X 12 = 15%
Effective annual interest rate:
ia = (1 + 0.0125)12 1 = 16.08%

$3.22 Effective interest rate per payment period:
$45 = $40(1 + i)
i = 12.5% per week
(a) Nominal interest rate:
r = 12.5% X 52 = 650% compounded weekly
(b) Effective annual interest rate:
ia = (1 + 0.125)52 1 = 45,601.60%

$3.24*
24-month lease plan:
PE = ($2,200 + $500) + $470(P/A, 0.5%, 24) $500(P/F, 0.5%, 24)
= $12,860.95
Up-front lease plan:
PE = $11,970 + $500 $500(P/F, 0.5%, 24)
= $12,026
Select the single up-front lease plan.

3.28*
(a) P = $4,000(P/A, 2.25%, 48) = $116,678
(b) P = $4,000(P/A, 2.2669%, 48) = $116,287
(c) P = $4,000(P/A, 2.2755%, 48) = $116,089

3.32 i = er/K 1 = 0.01829
A = $10,000(A/P, 1.829%, 16) = $726.56

3.35 i = e0.0975/4 1 = 2.4674%
P = $500(P/A, 2.4674%, 20) = $7,819

3.38*
(a) F = $1,500(F/A, 3%, 20) = $40,305.56
(b) F = $2,500(F/A, 2%, 24) = $76,054.66
(c) F = $3,000(F/A, 0.75%, 168) = $1,003,554.24

$3.40
$24,000 = $583.66(P/A, i, 48)
i = 0.65%
ia = (1 + 0.0065)12 1 = 8.085%

$3.45*
Future equivalent of the receipts:
F1 = $1,500(F/P, 2%, 4) + $2,500 = $4,123.65
Future equivalent of deposits:
F2 = A(F/A, 2%, 8)(1.02) = 8.7546A
Letting F1 = F2 and solving for A yields A = $471.03


$3.47
Establish the cash flow equivalence at the end of 25 years. Referring A to
his quarterly deposit amount, we obtain the following:
A(F/A, 2%, 100) = $45,000(P/A, 8.243%, 10)
312.2323A = $298,672
A = $956.57

3.54 First compute the present equivalent of the energy cost during the
first operating cycle:






P = $25(P/A, 0.75%, 3)(P/F, 0.75%, 1) + $40(P/A, 0.75%, 3)(P/F, 0.75%,
7) = $185.54

Then, compute the total present worth of the energy cost over 3
operating cycles.
P = $185.54 + $185.54(P/F, 0.75%, 12) + $185.54(P/F, 0.75%, 24)
= $510.25

3.55* Pas couvert en classe



3.58* Given: r1 = 6% compounded quarterly, r2 = 10% compounded
quarterly, and r3 = 8%
compounded quarterly, indicating that i1 = 1.5% per quarter, i2 = 2.5%
per quarter, and

i3 = 2% per quarter.

(a) Find P:
P = $2,000(P/F, 1.5%, 4) + $2,000(P/F, 1.5%, 8) + $3,000(P/F, 2.5%, 4)
X (P/F, 1.5%, 8) + $2,000(P/F, 2.5%, 8)(P/F, 1.5%, 8) + $2,000(P/F, 2%,
4)(P/F, 2.5%, 8)(P/F, 1.5%, 8)
= $8,875.42

(b) Find F:
F = P(F/P, 1.5%, 8)(F/P, 2.5%, 8)(F/P, 2%, 4) = 13,186

(c) Find A, starting at 1 and ending at 5:

F = A + A(F/P, 2%, 4) + A(F/P, 2.5%, 4)(F/P, 2%, 4) + A(F/P, 2.5%, 8) X
(F/P, 2%, 4) + A(F/P, 1.5%, 4)(F/P, 2.5%, 8)(F/P, 2%, 4) = 5.9958A

A = $2,199.21


3.60 Since payments occur annually, you may compute the effective
annual interest rate for each
year.



F = $400(F/P, 9.416%, 2)(F/P, 9.417%, 2) + $250(F/P, 9.416%, 1)(F/P,
9.417%, 2) + $100(F/P, 9.417%, 2) + $100(F/P, 9.417%, 1) + $250 =
$1,379.93

$3.64 Given: Purchase price = $18,000, down payment = $1,800,
monthly payment (dealer financing) = $421.85, N = 48 end-of-month
payments:

(a) Given: i = 11.75%/12 = 0.97917% per month
A = $16,200(A/P, 0.97917%, 48) = $16,200(0.02621) = $424.62

(b) Using dealer financing, find i: $421.85 = $16,200(A/P, i, 48)

i = 0.95% per month


r = 0.95% X 12 = 11.40% per year

$3.67* P = $175,000 $30,000 = $145,000, M = 2, r = 8.5%
Monthly interest rate i = (1 + 8.5%/2)1/6 1 = 0.6961%
A = $145,000(A/P, 0.6961%, 180) = $1,415.42

$3.74 Given: r = 7% compounded daily, N = 25 years
Since deposits are made at year end, find the effective annual interest
rate:
ia = (1 + 0.07/365)365 1 = 7.25%
Then, find the total amount accumulated at the end of 25 years:
F = $2,000(F/A, 7.25%, 25) + $125(F/G, 7.25%, 25)
= $2,000(F/A, 7.25%, 25) + $125(P/G, 7.25%, 25)(F/P, 7.25%, 25)
= $201,071.85

$3.75*
(a) $3,000 = $156.04(P/A, i, 24)
i = 1.85613% per month
r = 1.85613% X 12 = 22.2735%
ia = (1 + 1.85613%)12 1 = 24.6941%
(b) P = 156.04(P/A, 1.85613%, 12) = $1,664.85

3.79* $10,000 = A(P/A, 8%/12, 12) + A(P/A, 0.75%, 12)(P/F, 8%/12,
12) = A(11.4958) + A(11.4349)(0.9234) = 22.05479A
A = $453.42

$3.84 Given: Par value = $1,000, coupon rate = 8%, paid as $40 every 6
months, purchase price = $920, N = 8 semiannual periods, required YTM
= 9% compounded semiannually
$920 = $40(P/A, 4.5%, 8) + F(P/F, 4.5%, 8)
F = $933.13

$3.85 (c) P = $30(P/A, 4.5%, 10) + $1,000(P/F, 4.5%, 10)

3.88 Given: Par value = $1,000, interest payment = $100 semiannually, i
= 4.5% semiannually,
NA = 30 semiannual periods, NB = 2 semiannual periods
PA = $100(P/A, 4.5%, 30) + $1,000(P/F, 4.5%, 30) = $1,895.89

PB = $100(P/A, 4.5%, 2) + $1,000(P/F, 4.5%, 2) = $1,103



3.90 Given: Par value = $1,000, coupon rate = 12%, paid as $60 every 6
months, N = 30 semiannual periods

(a) Given that the nominal interest rate falls to 9% per year, after 2
years, find the sale price of the bond:
P = $60(P/A, 4.5%, 26) + $1,000(P/F, 4.5%, 26) = $1,227.20

(b) Given that the nominal interest rate rose to 13% per year, after 2
years, find the sale price:
P = $60(P/A, 6.5%, 26) + $1,000(P/F, 6.5%, 26) = $938.04

(c) Given that todays purchase price is $783.58, find the current yield:
current yield = $60/$783.58 = 7.657% semiannually
The effective annual current yield = 15.9%.

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