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Fdnbusm Problem Set 3 Singson

This document contains 5 problems involving calculating present and future values of annuities using compound interest formulas. The first problem asks to calculate the interest rate that will discharge a loan of $50,000 with quarterly payments of $6,000 over 2 years and 3 months. The second problem involves calculating the present value of a loan and future value after 6 monthly payments of $2,500 at 10% interest. The third problem asks how much needs to be invested today to receive a $18,000 annuity over 5 years with semiannual withdrawals at 10% annual interest. The fourth problem calculates how much a school needs to invest to provide five $2,000 scholarships annually for 10 years at a 9

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Ralf Singson
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168 views2 pages

Fdnbusm Problem Set 3 Singson

This document contains 5 problems involving calculating present and future values of annuities using compound interest formulas. The first problem asks to calculate the interest rate that will discharge a loan of $50,000 with quarterly payments of $6,000 over 2 years and 3 months. The second problem involves calculating the present value of a loan and future value after 6 monthly payments of $2,500 at 10% interest. The third problem asks how much needs to be invested today to receive a $18,000 annuity over 5 years with semiannual withdrawals at 10% annual interest. The fourth problem calculates how much a school needs to invest to provide five $2,000 scholarships annually for 10 years at a 9

Uploaded by

Ralf Singson
Copyright
© © All Rights Reserved
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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1. TOPIC: Finding the unknown Rate (j) with two possible values of i (10 pts.

At what interest rate payable quarterly will payments of P6,000 at the end of every 3 months for
2 years and 3 months, discharge a loan of P50,000, principal and interest included?
Given: r = 6000 p = 50000 t = 2.25 m = 4 n = 9
I = (9^2-1) i^2 + 6 (9+1) i + 12 ( 1 - 9(6000)/50000) = 0
I = (81-1) i^2 + 60i - 0.96
I = 80i^2 + 60i - 0.96 = 0
I = -60 + - √60^2 - 4(80)(-0.96)/2(80)
I = -60 + - √3600 - (-307.2)/160
I = -60 + - √3907.2/160
I = -60 + √3907.2/160
I = 0.02
I = -60 - √3907.2/160
I = -0.77
0.77
A = 6000[1-(1+0.02)^-9/0.02]
A = 48973.42

A = 6000[1-(1+(-0.77))^-9/-0.77]
A = 4326226157

2. TOPIC: Present Value and Amount of Annuity Due (5 pts. each)

In return for a loan, Eric agrees to pay Kyle P2,500 at the beginning of each month for 6
months, with interest at 10% compounded monthly.
Given: A = 2500 T = 6/12 j = 0.10 m = 12 n = 6 i = 0.008333

A. How much did Eric borrow from Kyle?


A = 2500[1-(1+0.00833)^-6/0.00833]
A = 14572.06

B. What is the equivalent amount of the loan at the end of 6 months?


S = 2500[(1+0.00833)^6-1/0.00833]
S = 15315.98

3. What must you invest today to receive an $18,000 annuity for 5 years semiannually at a 10%
annual rate? All withdrawals will be made at the end of each period. (5 pts.)
Given: a = 18,000 t = 5 j = 0.10 m = 2 n = 10 i = 0.05
R = 18,000 [1-(1+0.05)^-10 / (0.05)] (1+0.05)
R = 145940.79
4. Rase High School wants to set up a scholarship fund to provide five $2,000 scholarships for
the next 10 years. If money can be invested at an annual rate of 9%. How much should the
scholarship committee invest today? (5 pts.)
Given: A = $2,000 t = 10 j = 0.09% m = 1 n = 10 i = 0.09
R = 2,000[1-(1+0.09)^-10/ 0.09
R = 64177

5. Joe Wood decided to retire in 5 years in Arizona. What amount should Joe invest today so he
can withdraw $60.000 at the end of each year for 30 years after he retires? Assume Joe can
invest money at 6% compounded annually. (5 pts.)
Given: P = 60,000 t = 30 j = 0.06 m = 1 n = 30 i = 0.06
A = 60,000 [1-(1+0.06)^-30 / (0.06)] (1+0.06)
A = 825,888 x 0.7443
A = 617,186.10

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