Faculty of Commerce

Stat., Math., and Insurance

BUSINESS Mathematics 2
Exercises

Organized by
Prof. Dr. Safia Ahmed Abou Bakr
Professor of Insurance
Faculty of Commerce
Assiut University

2022-2023
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Chapter (1)

Exercise (1)

1. Find the simple interest on $750 for 2 months at 7% and the amount.
($8.75, $758.75)

2. Find the simple interest on $1225 for 3 months at 8% and the amount.

3. The contest passbook in Example 3 shows the following entries for the first 6
months. Compute the interest and balance on 3/31/93.

Date Deposit Interest Balance

10/1/92 $1000.00 $1000.00

11/1/92 1000.00 2000.00
12/1/92 1000.00 3000.00
12/31/92 $25.00 3025.00
1/1/93 1000.00 4025.00
2/1/93 1000.00 5025.00
3/1/93 1000.00 6025.00
3/31/93

4. Find the balance on June 30, 1993, for the account in the preceding problem.

5. A woman borrows $30,000 to buy a home. The interest rate is 12% and the
monthly payment is $308.59. How much of the first payment goes to interest and
how much to principal? (Interest $3000.00; principal $8.59)

6. A $40,000 home loan is to be repaid with monthly payments of $505.78. If the

interest rate is 15%, how much of the first payment goes to interest and how
much to principal?

7. A savings and loan association advertises a rate of 71/2%. Deposits made by the
10th of a month earn dividends from the 1st of that month. Deposits made after
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 the 10th earn dividends from the first of the following month. Dividends are
credited on June 30 and December 31. A depositor had $2045 in an account on
June 30, and deposited $1120 on September 7. How much will be in the account
of December 31?

8. A man has an account in the savings and loan association described in problem
7. His account had a balance of $1600 on December 31. He deposited $400 on
February 8 and %600 on April 25. Find the final entry in his passbook after interest is
credited on June 30.

9. A worker borrowed $150 for 2 months and paid $9.00 interest. What 2was the
annual rate? (36%)

10. A mechanic borrowed $125 from a licensed loan company and at the end of 1
month paid off the loan with $128.75. What annual rate of interest was paid?

11. If a person invests $3000 at 10%, how long will it take him to get $75.00
interest? (3 months)

12. How long will it take $8400 to earn $24.50 interest at 71/2%?

13. How long a time will be required for $625 to earn $25 interest at 9.6%?
(5 months)

14. How long will it take $9600 to earn $846.00 interest at 8%?

15. What is the amount if $3.6 million is borrowed for 1 month at 93/4%?
($3,629,250)

16. What is the amount if $14.4 million is borrowed for 2 months at 83/4%?

17. A man borrows $95. Six months later he repays the loan, principal and interest,
with a payment of $100. What interest rate did he pay?
(10.53%)

18. A loan shark made a loan of $50 to be repaid with $55 at the end of 1 month.
What was the annual interest rate?

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19. A waitress who was temporarily pressed for funds pawned her watch and
diamond ring for $55.00. At the end of 1 month she redeemed them by paying
$59.40. What was the annual rate of interest? (96%)

20. A man had a gambling debt of $150. He repaid it in 1 month with interest of
$145. Find the rate.

21. A teacher borrowed $200 from the credit union to which she belonged. Every
month for 8 months she paid $25 on the principal plus interest at the rate of 1% a
month on the unpaid balance at the beginning of the month. The first interest
payment would be 1% of $200, the second interest payment would be 1% of
$175, and so on until the loan was repaid. What was the total interest paid on this
loan? ($9.00)

22. A person borrowed $800 from a credit union that charges 1% per month on the
outstanding balance of a loan. Every month for 8 months the person paid $100 on
the principal plus interest on the balance at the beginning of the month. Find the
total interest.

23. The value of fixed income investments is very sensitive to changes in interest
rates. In 1963, when money was relatively easy or cheap, Cincinnati Gas and
Electric $100 par value, 4% preferred stock was quoted at 94. Early in 1972,
when interest rates were higher, the stock could be purchased for $61. What rats
of return or yield rates were received at these prices?

Exercise (2)

1. Find the ordinary and exact interest on $750 for 100 days at 6 % ($12,50;
$12,33)

2. Find the ordinary and exact interest on $6080.50 for 60 days at 121/2%.

3. Find the ordinary and exact interest on $1200 for 45 days at 16%.
(24.00; $23.67)

4. if P = $9800 and r = 15%, find the ordinary and exact interest for a 120-day loan.

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5. use exact time and find the ordinary and exact interest on $300 at 18% from May
5 to September 12 of the same year.

(19.50; $19.23)

6. use exact time and find the ordinary and exact interest on $500 from November
30, 1990 to March 15, 1991, using a rate of 71/2%.

7. Do problem 5 using approximate time.

($19.05; $18.79)

8. Do problem 6 using approximate time.

Use Bankers' Rule in Problems 9-14.

9. What amount must be repaid on November 21, 1992, if $7000 is borrowed at

16% on November 1, 1992? ($7062.22)

10. A person borrows $7760 on December 15, 1992, and repays the debt on March 3,
1993, with interest at 15%. Find the amount repaid.

11. A debt of $500 is due on June 15, 1994. After that date the borrower is required
to pay 14% interest . If the debt is settled on January 10, 1995 what must be
repaid? ($540.64)

12. On May 4, 1991, a person borrows $1850 and promises to repay the debt in 120
days with interest at 12%. If the loan is not paid on time the contract requires the
borrower to pay 10% on the unpaid amount for the time after the due date.
Determine how much this person must pay to settle the debt on December 15,
1991.

13. A person borrows $3050 on December 15, 1995, at 13%. What amount must be
repaid on April 8, 1996? Note that for leap years, the number of the day after
February 28 is one more than the number in Table 1. ($3176.66)

14. A borrower of $5000 on November 11, 1987, at 11% must repay what amount of
March 10, 1988?

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15. On December 31 a person has $3000 in an account in a savings and loan
association. The money will earn dividends at 51/2% if it is left on deposit until
the next interest date, which is June 30. Money withdrawn before June 30 does
not get any interest. On May 1 the borrower needs $1000. Instead of drawing
money out of the account, the borrower makes a passbook loan using the
passbook as security. This loan will be repaid from the borrower's account on
June 30 when the interest is received. If the savings and loan association charges
6% for a passbook loan, this plan will save how much money as of June 30? The
savings and loan association uses Bankers' Rule to calculate interest on passbook
loans. ($17.50)

16. Find the answer to problem 15 if the loan is for $1500 and is made on March 31.

17. A merchant receives an invoice for $4000 with terms 2/10, n/60. If payment is
made on the 10th day, what rate of interest will be earned?
(14.7%)

18. An invoice for %5000 has terms 3/10, n/45. What rate of interest is earned if
payment is made on the 10th day?

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Chapter (2)

Exercise (1)

1. What is the present value of $1500 due in 9 months if money is worth 8%?
($1415.09)

2. At an interest rate of 12%, what is the present value of $4300 due in 3 months?

3. At 6% interest, what is the present value of $600 due in 6 months?

($582.52)

4. What is the present value of $600 due in 6 months at: (a) 10% (b) 12$? (c) 14%?

5. What is the present value of $600 due in 6 months at: (a) 8%? (b) 10%? (c) 12%?

[(a)$92.59; (b) $90.91; (c) $89.29)]

6. At 12% find the present value of $2000 due in: (a) 3 months; (b) 6 months; (c) 9
months.

7. A woman can buy a grandfather clock for $3000 cash or $3100 in 1 year. She has
the cash but can invest it at 6%. Which is more advantageous to her and by how
much now?

(By paying $3100 in a year, she saves $75.47 now).

8. If you can earn 71/2% on money, is it better to pay $1990 cash for an item or to
pay $2090 in a year? Give the cash equivalent of the savings resulting from
adopting the better plan.

9. A woman can discharge an obligation by paying either $200 now or $208 in 6

months. If money is worth 51/2% to her, what is the cash equivalent of choosing
the better plan?

10. A man can settle a debt by paying either $1475 now or $1500 in 2 months. If he
can earn 9% on his money, which plan Is more advantageous and by how much
now?

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Chapter (3)

Exercise (1)

1. Determine the bank discount and the proceeds if $1500 is discounted for 3
months at a discount rate of 10%.

($37.50; $1462.50)

2. Determine the bank discount and the proceeds if $4400 is discounted at a

discount rate of 12% for 2 months.

3. Find the discount on $3200 for 60 days at 131/2% discount. What are the
proceeds? ($72.00; $3128.00)

4. Find the discount on $568.30 for 120 days at 101/2 discount. What are the
proceeds?

5. Find the bank discount and the present value of $50000 due in 5 months using a
discount rate of 15%.

($312.50; $4687.50)

6. An obligation of $6040 is due in 10 months. What is the present value of this

obligation at a bank discount rate of 14%?

7. A bank charges 14% for discounting loans. If a man agrees to repay $1200 in 3
months, how much does he receive now?

8. An obligation of $650 is due on August 10. What is its value on April 6 if it is

discounted at a discount rate of 12%?

9. Find the bank discount and the proceeds if $450 is discounted for 30 days at
101/2%. ($3.94; $446.06)

10. Find the bank discount and the proceeds if $240,000 is discounted for 60 days at
15%.

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11. A woman wants $5000 for 3 months. What size loan should she get if her bank
charges a discount rate of 16%? ($5208.33)

12. A man wants $800 for 6 months. What size loan should he ask for if his bank
charges a discount rate of 10%?

13. George Wilson needs $800 on February 10. He plan to repay the money on June
30. What size loan should he request if his bank's discount rate is 11%?
($835.75)

14. A borrower needs $4000 on June 1, and expects to repay the loan on July 16.
What size loan should the borrower request from a lender whose discount rate is
12%?

15. A bank discounts a sum that is due in 1 year. If the discount rate is 11%, what is
the equivalent interest rate? (12.36%)

16. If a sum is due in 90 days, what is the interest rate equivalent to a discount rate of
15%?

17. If a sum is due in 6 months, what is the interest rate equivalent to a discount rate
of 14%? (15.05%)

18. If a sum is due in 1 month, what is the interest rate equivalent to a discount rate
of 12%?

19. A lender wants to get a 12% interest rate on a loan being made for 6 months.
What discount rate should the lender use?
(11.32%)?

20. to get 15% interest on 120-day loans, what discount rate should be charged?

Exercise (2)

1. On August 5, 1998, Alice E. Sproul discounts the note in Figure 2-4 at a bank
that charges a discount rate of 121/2%. What are the proceeds?
(808.92)

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2. Find the proceeds if Ms. Sproul discounts the note on July 1, 1998, at a bank
charging a discount rate of 121/2%.

3. On February 1, 1993, John P. Foley discounts the note in Figure 2-5 at a bank
that charges a discount rate of 10%. How much does he get?
($7937.78)

4. What are the proceeds if Mr. Foley discounts the note in problem 3 on February
15, 1993, at a bank charging a discount rate of 11%?

5. On December 20, 1996, Francis A. Kuhn Discounts the note in Figure 2-6 at a
bank that charges a discount rate of 12%. How much does he receive?
($3094.65)

6. What are the proceeds if Mr. Kuhn discounts the note in problem 5 on October
16, 1996, at a bank charging a discount rate of 12%?

7. The Gibson Hardware Company has a note for $1200 dated November 15, 1992.
The note is due in 6 months with interest at 16%. If the Gibson Company
discounts the note on January 30, 1993, at a bank charging a discount rate of
15%, what will be the proceeds? ($1239.30)

8. A merchant receives a note for $1245.40 that is due in 60 days with interest at
15%. The note is discounted immediately at a bank that charges 16% discount.
What are the proceeds?

9. A company holds the following non-interest-bearing notes. The notes are all
taken to the bank on August 14, 1989, and the proceeds deposited in the
company's account. Find the total proceeds if the discount rate is 12%.

Date of note Term Face value

July 15, 1989 90 days $1000

August 14, 1989 45 days 800

June 25, 1989 60 days 4000

($5754.67)
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10. A company holds the following non-interest-bearing notes. The notes are taken
to the bank on November 5, 1990, and the proceeds deposited in the company's
account. Get the total proceeds if the discount rate is 121/2%.

Date of note Term Face value

September 6, 1990 90 days $2000

October 16, 1990 60 days 2500

October 12, 1990 30 days 4800

11. A company holds the following interest-bearing notes. The notes are discounted
at 10% on June 1, 1992. Find the total proceeds.

Date of note Term Face value Rate

April 2, 1992 90 days $2000 8%

June 1, 1992 30 days 1000 9%

($3022.10)

12. A company holds the following interest-bearing notes. They are discounted at
14.2% on July 15, 1991. Find the total proceeds.

Date of note Term Face value Rate

May 16, 1991 120 days $42090 9%

June 10, 1991 45 days 6000 8%

13. A person buys merchandise costing $340, and wants to give a 30-day non-
interest-bearing note that, if the creditor discounts it immediately at 71/2%, will
12
 result in proceeds of $340. For what amount should the person make out the
note?

($342.14)

14. The owner of a store needs $500 cash for a business transaction and arranges to
get the money from a bank that charges a discount rate of 10%. If the note is for
90 days, it should have what face value if the proceeds are to be $500.

15. On April 10 a woman obtains a loan from her bank to be repaid on June 29. If the
bank's discount rate is 131/2%, what must be the face value of a non-interest-
bearing note that will have proceeds of $485? ($500.00)

16. On July 10 a man needs $2350, which he plans to repay on September 18. he gets
a loan from a bank that has a bank discount rate of 14.4%. What will be the face
value of the non-interest-bearing note that he signs?

17. On June 1 Fanger and Rampke buy merchandise amounting to $3000. If they pay
cash they will get a 2% cash discount. To take advantage of this cash discount,
they sign a 60-day non-interest-bearing note at their bank that charges a discount
rate of 14%. What should be the face value of this note to give them the exact
amount they need to pay cash for the merchandise?
($3010.24)

18. The Economy Appliance store buys merchandise totaling $4560. A 3% discount
will be allowed for cash payment. The store manager gets the cash by signing a
30-day non-interest-bearing note at a bank that charges a discount rate of 12%.
Find the face value of the note.

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Chapter (4)

Exercise (1)

Part (A)

1. Find the accumulated value of an ordinary simple annuity of %2000 per year for 5
years if money is worth (a) j1=9%, (b) j1=12½%.

2. find the accumulated value of an annuity of $500 at the end of each month for 4
years at 9% per annum payable monthly.

3. Lauren deposits $100 every 3 months in a savings account that pays interest at
j4=8%. If she makes her first deposit on July 1, 1993, how much will she have in
her account just after she makes her deposit on January 1, 1996?

4. One hundred dollars at the end of each year for 5 years is equivalent to what single
payment at the end of 5 years if interest is at (a) j1=10% and at (b) j1=6.3%?

5. Jason is repaying a debt with payments of $120 a month. If he misses his payments
for June, July, August and September, what payment will be required in October to
put him back on schedule if interest is at 12% per annum convertible monthly?.

6. Find the accumulated value of an annuity of $50 a month for 25 years if interest is
(a) 8% per annum compounded monthly, (b) at j12=11%.

7. Find the accumulated value of annual deposits of $100 each immediately after the
10th deposit if the deposits earned 10% per annum in the first 5 years and 12% per
annum in the last 5 years.

8. Michael deposits $100 at the end of each year for 5 years and then $200 at the end
of each year for 8 years. Find the accumulated value of these deposits at the end of
13 years if interest is j1=7%.

9. Ashley deposits $500 into an investment fund each January 1 starting in 1989 and
continuing to 1998 inclusive. If the fund pays interest at j1=10%, how much will
be in her account of January 1, 2003?.

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10. Mr. Juneau has deposited $800 at the end of each year into a RRSP investment
fund for the last 10 years. His investments earned j1=10% for the first his account
10 years after his last deposit if interest rates have remained level at j1=9%?

11. Rebecca has deposited $80 at the end of each month for 7 years. For the first 5
years the deposits earned 12% compounded monthly. After 5 years they earned
9% compounded monthly. Find the value of the annuity after (a) 7 years, (b) 10
years.

12. What quarterly deposits should be made into a saving account paying j4=4% to
accumulate $10 000 at the end of 10 years?.

13. It is estimated that a machine will need replacing 10 years from now at a cost of
$80. How much must be set aside each year to provide that money if the
company's savings earn interest at an 8% annual effective rate?.

14. Jack has made semi–annual deposits of $500 for 5 years into a saving fund paying
interest at j2=13¼%. What semi –annual deposits for the next 2 years will bring
the fund up to %10 000?.

15. Marie deposited $150 at the end of each month into an account earning j12=8%.
She made these deposits for 14 years except that in the fifth year she was unable
to make any deposits. Find the value of the account two years after the last
deposit.

Part (B):

1. Jane opened a savings account with a deposit of $1000 on January 1, 1987. She
then made monthly deposits of $200 for 10 years (first deposit February 1, 1987).
She then made monthly withdrawals of $300 for 5 years (first withdrawal February
1, 1997). Find the balance in this account just after the last $300 withdrawal (i.e.,
January 1, 2002) if j12=6%.

2. Frank has deposited $1000 at the end of each year into his Registered Retirement
Savings Plan for the last ten years. His deposits earned interest at j1=9% for the
first 3 years, at j1=11% for the next 4 years and at j1=8% for the last 3 years. What
is the value of his plan after his last deposit?

15
3. Prove:

a) (1+i) si = s+1i – 1.

b) s+i = 8mi + (1=i)m si = (1+i)n si + si

Illustrate both (a) using a time diagram.

4. If si = 10 and i=10% find s+2i and s2i.

5. Beginning June 30, 1992, and continuing every three months until December 31,
1996, Albert deposits $300 into a new savings account. Starting September 30,
1997, the makes quarterly withdrawals of $500. What is Albert's balance after the
withdrawal on June 30, 1999, if interest is a j4=8% until March 31, 1995 and
j4=6% afterward?

6. It is desired to check a column of values of si from n=20 through n=40 by

verifying their sum by means of an independent formula. Derive an expression for
the sum of these values.

7. Show that si = n +

8. a) Show that (1+i)n = 1 + i si. n(n - 1) n(n  1)( n  2) 2

i i
1.2 1.2.3
b) Verbally interpret this formula.

9. find an expression for an accumulation factor for n equal payments of $1 assuming

simple interest at rate i per payment period.

10. Prove that:

11. a) Barbara wants to accumulate $10 000 by the end of 10 years. She starts making
quarterly deposits in her bank account which pays j4=8%. Find the size of these
deposits.

b) After 4 years, the bank, changes the interest rate to j4=6%. Find the size of the
quarterly deposits now required if the $10 000 goal is to be met.

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12. George wants to accumulate $7000 in a fund at the end of 10 years. He deposits
$300 at the end of each years for the first five years and then $(300+x) at the end
of each year for the next five years. Find x if j1=13¼%.

13. You want to accumulate $100 000 at the end of 20 years. You deposit $1000 at
the end of each year for the first 10 years and $(1000+x) at the end of each year
for the second 10 years. Interest is j1=10¼%.

Exercise (2)

Part (A):

1. A debt of $400 bears interest at j2 = 12%. It is to be repaid by semi–annual

payments of $400. Find the number of full payments needed and the final smaller
payment after the last full payment.

2. Melissa takes her inheritance of $25 000 and invests it at j12 = 9%. How many
monthly payments of $250 can she expect to receive and what will be the size of
the concluding payment? Use both Procedure (1) and Procedure (2).

3. A couple wants to accumulate $10 000. If they deposit $250 at the end of each
quarter year in an account paying j4 = 6%, how many deposits must they make and
what will be the size of the final deposit? Use both Procedure (1) and Procedure
(2).

4. A firm buys a machine for $30 000. They pay $5000 down and $5000 at the end of
each year. If interest is at j1 10%, how many full payments must they make and
what will be the size of the concluding smaller payment?

5. A fund of $20 000 is to be accumulated by n annual payments of $2500 plus a final

smaller payment made one year after the last regular payment. If interest is at j12 =
8%, find n and the final irregular payment.

6. A loan of $10 000 is to be repaid by monthly payments of $400, the first payment
due in one year's time. If j12 = 12%, find the number of regular monthly payments
needed and the size of the final smaller payment.

17
7. A fund of $8000 is to be accumulated by semi–annual payments of $2000. If j2 =
12%, find the number of full deposits required and the final smaller payment.

8. On July 1, 1993, Shannon has $10 000 in an account paying interest at j4 = 12½%.
She plans to withdraw $500 every three months with the first withdrawal on
October 1, 1993. How many full withdrawals can she make and what will be the
size and the date of the concluding withdrawal?

9. A parcel of land, valued of $350 000, is sold for $150 000 down. The buyer agrees
to pay the balance with interest at j12 = 12% by paying $5000 monthly as long as
necessary, the first payment due 2 years from now.

10. From July 1, 1986, to January 1, 1991, a couple made semi–annual deposits of
$500 into a special savings account paying j2 = 11%. Starting July 1, 1995, they
start making semi–annual withdrawals of $800.

a) How many withdrawals can they make and what is the size and date of the last
withdrawals?

b) If the couple decide to exhaust their savings with equal semi–annual

withdrawals from July 1, 1995, to July 1, 2005, inclusive, how much will they get
each half–year?.

11. In October 1987, an industrialist gives your school $30 000 to be used for future
scholarships of $4000 at each fall convocation starting the year the industrialist
dies. If the industrialist died May 1990 and the money earms interest at j1 = 8%,
for how many years will full scholarships be awarded?

12. A debt of $18 000 is to be repaid in annual installments of $3000 with the first
installment due at the end of the second year and a final installment of less than
$3000. Interest is 14% per year compounded annually. Find the final payment.

Part (B):

1. Antonio is accumulating a $10 000 fund by depositing $100 at the end of each
month, starting September 1, 1987. If the interest rate on the fund is j12 = 12% until
May 1, 1990 and then it drops to j12 = 10½%, find the time and account of the
reduced final deposit.
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2. A widow, as beneficiary of a $50 000 insurance policy, will receive $15 000
immediately and $1800 every three months thereafter. The company pays interest
at j4 = 9%; after 3 years, the rate is increased to j4 = 11%.

a) How many full payments of $1800 will she receive?

b) What additional sum paid with the last full payment will exhaust her benefits?

c) What payment 3 months after the last full payment will exhaust her benefits?

3. On his 25th birthday, Yves deposited $2000 in a fund paying j1 = 10% and
continued to make such deposits each year, the last on this 49th birthday.
Beginning on his 50th birthday, Yves plans to make equal annual withdrawals of
$20 000.

a) How many such withdrawals can be made?.

b) What additional sum paid with the last withdrawal will exhaust the fund?

c) What sum paid one year after the last full withdrawal will exhaust the fund?

4. A couple bought land worth $300 000. they paid $50 000 down and signed a
contract agreeing to repay the balance with interest at j1 = 12% by annual
payments of $50 000 for as long as necessary and a smaller concluding payments
one year later. The contract was sold just after the 4th annual payment to an
investor who wants to realize a yield of j1 = 13%. Find the selling price.

5. A loan of $20 000 is to be repaid by annual payments of $4000 per annum for the
first 5 years and payments of $4500 per year thereafter for as long as necessary.
Find the total number of payments and the amount of the smaller final payment
made one year after the last regular payment. Assume an ann7ual effective rate of
18%.

6. Solve the equation S = R si for n.

7. Solve the equation A = R i for n.

8. A friend agrees to lend you $2000 on September 1 ech year for 4 years to help with
education costs. One year after the last payment you are expected to start annual
19
 repayments of $700 for as long as necessary. Interest on the loan is j1 = 6 %. Find
the number of repayments needed, and the amount of the final payment.

9. A car loan of $10 000 at j12 = 12% is being paid off by n payments. The first (n–1)
payments are $263.34 per month. The final monthly payment is $263.24. Find n.

20
Chapter (5)

Exercise (1)

1. On July of 1976 a man entered a bank in Cincinnati, Ohio, with $6700 worth of
certificates of deposit at 8% taken out in 1919. Suppose that the certificates
were purchased on July 1, 1919, and cashed on July 1, 1976. Find the value of
the certificate es if interest is compounded annually, and compare this with the
answer to problem 1 in the Review Exercises for Chapter 1.

($538,553.52)

2. Do problem 1 assuming that the interest is compounded semiannually.

3. When Secretary of State William Seward purchased Alaska for less than 2 cents
an acre in 1967, some dubbed it "Seward's Icebox," Other "Seward's Folly".
Since that time Alaska has yielded nearly 100 times its price in gold alone. If the
$7.2 million that the United States paid Russia for Alaska in 1867 had been
invested at 4% compounded annually, how much would the investment have
been worth in 1967 (to the nearest million)? ($364 million)

4. In 1929 Peter Minuit bought Manhattan Island from the Indians for trinkets
valued at 60 guilders, or $24. Had this money been put into a savings account
paying 3% converted annually, how much would be in the account now? Answer
to the nearest $10,000.

5. A note is redeemable in 10 years for $100,000. How much should be paid for the
note by a buyer who wants to earn 14% converted quarterly? ($25,257.25)

6. how long will it take an investment of $1000 to be worth at least $3000 at 9%

converted: (a) annually? (b) semiannually? (c) quarterly? (d) monthly?

7. An investment of $5000 is made at 6% compounded semiannually. How long

will it take until the investment is worth $7000?

(51/2 years plus 68 days)

21
8. The population of a country increases from 130 million to 148 million in 10
years. Find the annual compounded rate of increase.

9. An illegal money lender makes a loan of $100. Six months later the victimized
borrower repays $133.10. On a converted monthly basis, find the rate. (59%)

10. A loan of $3000 is partially repaid with payments of $1000 after 6 months and
$1500 after 1 year. If the rate is 12% converted semiannually, find the payment
in 2 years that will discharge the debt.

11. A person holds a 1-year note that can be cashed at any time for its face value of
$5000 or held to maturity to earn interest at 6%. Six months prior to the maturity
date, the holder needs $5000. Would it be better for the holder to cash the note or
to borrow the money for 6 months at 10% converted monthly?

(Loan is better by $44.73 at maturity date).

12. Find the value on July 20 of a note for $2500 to be paid on December 5 of the
same year if money is worth 9% converted monthly.

13. The parents of four children, a 13-year-old, a 12-year-old, and 10-year-old twins,
die suddenly. Their wills call for a trust fund of $200,000 to be held, with equal
amounts of the money to be given to each of the children at age 18. if the fund
earns 10% converted quarterly, find the amount each child will get.

($96,586.28)

14. Find the amount each child in problem 13 would get if the with called for a trust
fund of $50,000 to be set up for each.

15. Look up the current value of the Consumer Price Index relative to 1967 - 100.
Use this value to get the annual compounded rate of change of the CPI and the
value of the dollar since 1967.

16. Find the effective rate corresponding to 12% compounded continuously, using
both t = 1 and Bankers' Rule.

22
17. Five thousand dollars is invested at 6% for 15 years. Find the4 amount if the
interest is compounded: (a) annually; (b) quarterly; (c) monthly; (d)
continuously; (e) continuously using Bankers' Rule.

[(a) $11,982.79; (b) $12,216.10l (c) $12,270.47; (d) $12,298.02; (e) $12,452.71]

23
Chapter (6)

Exercise (1)

1. A person owes $30,000 due in 2 years and $50,000 due in 4 years. If money is
worth 7% converted semiannually, what single payment 3 years hence will settle
the obligations?

($78,812.29)

2. On June 1, 1991, a woman owes $4000, which she is unable to repay. Her
creditor charges her 12% converted semiannually from that date. If the debtor
pays $2000 on June 1, 1992, how much would she have to pay on June 1, 1993,
to discharge the ret of her obligation?

3. Hull owes Graves $10,000 due at the end of 2 years and $10,000 due at the end
of 3 years. He wishes to replace these two obligations with a single payment due
at the end of 21/2 years. If the two parties agree that money is worth 14%
converted semiannually, what will be the size of the payment?

($20,045.79)

4. Wilson owes Smith $20,000 due at the end of 2 years and $25,000 due at the end
of 4 years. Both men agree that Wilson may settle his obligations with a single
payment at the end of 3 years using an interest rate of 9%. Solve this problem for
the single payment, putting the focal date at 3 years. Solve a second time using 4
years for the focal date.

5. A mother leaves $10,000 to her two children with the provision that they are to
get equal amounts when they reach age 21. If the children are 12 and 17 when the
woman dies, how much will each receive? The money is invested at 8%
compounded quarterly.

(%8205.67)

6. A man leaves an estate of $30,000 that is invested at 7% compounded

semiannually. At the time of his death, he has three children, aged 13, 15 and 19.

24
 Each child is to receive an equal amount from the estate upon reaching age 21.
How much does each get?

7. Suppose that the woman in problem 5 had left each child $5000 with the
provision that the money be invested at 8% compounded quarterly and the
amount be given to each child upon reaching 21. How much would each get?

(12-year-old child, $10,199.44; 17-year-old child, $6863.93)

8. Suppose that each of the three children in problem 6 received $10,000 upon the
father's death with the provision that the money be invested at 7% compounded
semiannually until each child reaches age 21. How much would each receive?

9. A piece of property is sold for $10,000. The buyer pays $2000 cash and signs a
non-interest-bearing note for $4000 due in 1 year. If the seller charges 10%
converted quarterly for credit, what non-interest-bearing note due in 2 years will
pay off the debt?

($5331.97)

10. Assume that the buyer in problem 9 signs a non-interest-bearing note for $4000
due in 2 years. The remainder of the debt is to be met with a non-interest-bearing
note due in 1 year. For how much should this note be drawn if the seller charges
10% converted quarterly?

11. Instead of taking $3000 cash, the beneficiary of an estate takes 2 equal payments
due in 1 and 2 years, respectively. If the investment pays interest at 7% converted
quarterly, what will be the size of each payment?

($1663.55)

12. A mother invests $2000 at 6% compounded semiannually on her son's 12th

birthday. If the money is to be paid to the son in 4 equal annual payments starting
on his 18th birthday, what we be the size of each payment?

13.(c) A building is sold for $35,000. The buyer pays $8000 cash and signs a note with
maturity value $10,000 due in 1 year and another with maturity value $10,000
due in 2 years. If the seller charges interest on the debt at 10%, what should be
25
 the maturity value of a third note due in 3 years that will pay off the remainder of
the debt?

($12,837.00)

14. A woman borrows $5000 on March 1, 1990, agreeing to ay 12% compounded

semiannually. She pays $2000 on September 1, 1991. How much will she have to
pay to settle the debt on October 16, 1992?

15. On August 1, a man bought $300 worth of merchandise and signed a note
promising to pay the $300 without interest in 6 months. On November 1, he
bought $500 worth of merchandise and signed a note promising to pay $500
without interest in 6 months. On December 1, the holder of the notes sold them to
a finance company that charged 18% converted monthly. How much does the
finance company pay for the notes?

($755.33)

16. On June 1, a woman bought $400 worth of goods and gave a note for $400 to be
paid in 6 months without interest. On August 1, she bought $400 worth of goods
and signed another 6-month, non-interest-bearing note for this amount. On
November 1, the company that holds the notes had them discounted by a finance
company that charges 21% converted monthly. How much was received for the
notes?

17. A woman owes $500 due now and $1000 due in 15 months. Her creditor will
allow her to pay both debts in 18 months provided that the settlement is based on
16% converted quarterly. What payment in 18 months will settle both
obligations?

($1672.6)

18. A man buys machinery worth $6000. He pays $2000 down and agrees to pay the
balance in 2 equal payments in 3 and 6 months, respectively. If interest is
charged at 16% converted monthly, what will be the size of each payment?

19. A piece of property can be purchased for $28,000 cash or for $10,000 down and
2 equal payments of $10,000 at the end of 1 and 2 years, respectively. To pay
26
 cash, the buyer would have to withdraw the money from an investment that is
paying 8% converted semiannually. How much will the buyer save now by
choosing the better method of payment?

(By paying on time, the buyer saves $206.40 now)

20. If the buyer in problem 19 has money in stock that are currently yielding 6% on
their market value, would you recommend that the buyer sell the stocks and pay
cash? Explain your answer in terms of probable savings by adopting your
recommendations.

Exercise (2)

1. A company bought a piece of equipment for $10,000. The item depreciates at

20% a year. Find the book value at the end of each year for 5 years and the
annual depreciation in dollars.

(After 5 years the book value is $3276.80)

2. A crane costs $20,000 and depreciates at 10% a year. Find the book value and
annual depreciation for the first 4 years.

3. Do problem 1 if the cost was $15,000.

($4915.20 in 5 years)

4. Do problem 2 assuming that the rate is 15%.

5. If an investment pays 91/2% return, what will be the amount of $100 in 5 years?

($157.42)

6. What will be the amount of $234.50 in 8 years at 7.2% compounded

semiannually?

7. If an investment pays 10%, how much must be invested today to amount to $250
in 10 years?

($96.39)

27
8. How much must be invest3ed at 7.6% converted quarterly to amount to $500 in 4
years?

9. How long does it take #$350 to amount to $500 at 4.75% converted annually?
Give the answer to the nearest year.

(6 years)

10. How many years will it take $45,000 to amount to $72,000 at 8.8% converted
annually?

11. How long does it take an investment to at least triple itself at 9.5% compounded
annually?

(12 years).

12. How long will it take a principal of $42,000 to amount to %60,000 at 7.25%
converted quarterly? Give the answer to the nearest period.

13. What is the annual rate of interest if an investment of $3500 amounts to $45,000
in 40 years?

(6.6%)

14. An investment of $6700 amounted to $32,000 in 14 years. What was the annual
rate of return correct to .1%.

15. A piece of property was purchased in 1972 for $32,000. In 1987 it was sold for
$255,000. What annual rate of return was received on this investment?

(14.8%)

16. What is the nominal rate of return converted semiannually if %6780 amounts to
$18,550 in 81/2 years?

17. Over the past several years a business has been increasing at an approximately
constant rate of 10% a year. If the business had sales of $2.5 million in 1977,
what are the estimated sales for 1987, assuming that the business continues to
increase at about the same rate?

28
 ($6.5 million)

18. The net income of a business has been increasing at about 12% a year. If the net
income in 1988 was $23.6 million, what is the estimated net income for 1992?

19. A person estimates that a piece of property will be worth $185,000 in 6 years. If
a return of 81/2% on the investment is expected, what is the property worth today
to the nearest thousand dollars?

($113,000)

20. The estimated value of a piece of property in 5 years is $75,000. What would it
be worth today to a speculator who expects a rate of 10% on the money invested?

21. An investor who bought 100 shares of International business Machines

Corporation common stock for $2750 in 1914 would have had 74,150 shares in
1976 worth approximately $20 million. Find the compounded annual rate of
increase in the value of this investment to the nearest percent.

(15%)

Exercise (3)

1. One thousand dollars is invested for 21/2 years at a nominal annual rate of 6%.
Find the amount if interest is compounded: (a) quarterly; (b) monthly; (c)
continuously.

[(a) $1160.54; (b) $1161.40; (c) $1161.83]

2. Solve problem 1 using a nominal annual rate of 9%.

3. Five thousand dollars is invested for 18 months

at a nominal annual rate of 8%. Find the amount
if interest is compounded: (a) semiannually; (b) quarterly; (c) continuously.

[(a) $5624.32; (b) $5630.81; (c) $5637.48]

29
4. An obligation of $10,000 is due in 3 years. Find the present value using a
nominal rate of 7% compounded: (a) annually; (b) semiannually; (c)
continuously.

[(a) $8162.98; (b) $8135.01; (c) $8105.84]

6. Solve problem 5 using a nominal rate of 8%.

7. An obligation of $50,000 is due in 5 years. Find the present value using a

nominal rate of 10% if interest is compounded: (a) semiannually; (b) quarterly;
(c) continuously.

[(a) $30,695.6; (b) $30,513.55; (c) $30,326.55]

30