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Tutorial 6 - Questions

This document contains 9 practice problems about compound interest: 1) Calculating the accumulated value of $1000 at 10 years with 6% interest. 2) Calculating the value in 2018 of $10,000 given to Columbus in 1492 with 1% compound vs simple interest. 3) Determining if a $400,000 cash purchase or $230,000 down plus $200,000 in 5 years at 4% interest is a better land deal.

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Rajneet Chand
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58 views

Tutorial 6 - Questions

This document contains 9 practice problems about compound interest: 1) Calculating the accumulated value of $1000 at 10 years with 6% interest. 2) Calculating the value in 2018 of $10,000 given to Columbus in 1492 with 1% compound vs simple interest. 3) Determining if a $400,000 cash purchase or $230,000 down plus $200,000 in 5 years at 4% interest is a better land deal.

Uploaded by

Rajneet Chand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Tutorial 6: Compound Interest

1. Determine the accumulated value of $1000 at the end of 10 years if i = 6%

2. In 1492, Queen Isabella sponsored Christopher Columbus’ journey by giving him $10,000.
If she had placed this amount in a bank account at 1% per annum, how much money would be
in the account in 2018 with compound interest? With simple interest?

3. A man can buy a piece of land for $400,000 cash or payments of $230,000 down and
$200,000 in 5 years. If the interest rate is 4% p.a., which plan is better?

4. How long will it take for money to triple at a rate of 6% p.a.?

5. An obligation of $2500 falls due at the end of 7 years. Determine an equivalent debt at the
end of 3 years at 9% p.a.?

6. A debt of $5000 is due at the end of 5 years. It is proposed that $X be paid now, with another
$X to be paid in 10 years to liquidate the debt. Calculate the value of X if the interest rate is
5% for the first 6 years and 6% for the next 4 years.

7. A person borrows $2000 to be repaid in 3 instalments, one in 6 months, one in 12 months


and one in 18 months. The second payment is to be twice as big as the first payment and the
third payment is to be 3 times the first payment. What will be the size of the payments if the
focal date is today and the compound interest rate is J12 = 12% p.a.?

8. A 1-year loan of $1400 is taken today at compound interest of J12 = 12%, partial payments
of $400 in 2 months, $30 in 6 months and $600 in 8 months are made. Determine the balance
due in 1 year.

9. You borrow $1000 now, and $3000 in 4 months. You agree to pay $X in 6 months and $2X
in 8 months. Determine the value of X using compound interest rate of J12 = 12%, and focal
date of 5 months

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