1.

If you deposit $4000 into an account paying 6% annual interest compounded quarterly,
how much money will be in the account after 5 years?

2. If you deposit $6500 into an account paying 8% annual interest compounded monthly,
how much money will be in the account after 7 years?

3. How much money would you need to deposit today at 9% annual interest
compounded monthly to have $12000 in the account after 6 years?
4. If you deposit $5000 into an account paying 6% annual interest compounded monthly,
how long until there is $8000 in the account?

5. If you deposit $8000 into an account paying 7% annual interest compounded quarterly,
how long until there is $12400 in the account?

6. At 3% annual interest compounded monthly, how long will it take to double your
money? At first glance it might seem that this problem cannot be solved because we do
 not have enough information. It can be solved as long as you double whatever amount
you start with. If we start with $100, then P = $100 and FV = $200.

7. Jasmine deposits $520 into a savings account that has a 3.5% interest rate
compounded monthly. What will be the balance of Jasmine’s savings
account after two years?

8. Lex has $1,780.80 in his savings account that he opened 6 years ago. His
account has an annual interest rate of 6.8% compounded annually. How
much money did Lex use to open his savings account?
 INFLATION

9. The first sewage treatment plant for Athens, Georgia cost about $2 million in 1964. The
utilized capacity of the plant was 5 million gallons/day (mgd). Using the commonly
accepted value of 135 gallons/person/day of sewage flow, find the cost per person for the
plant. Adjust the cost to 1984 dollars with inflation at 6%. What is the annual capital
expense per person if the useful life is 30 years and the value of money is 10%?
10. How much life insurance should a person buy if he wants to leave enough money to his
family, so they receive $25,000 per year in interest, of consent Year 0 value dollars? The
interest rate expected from banks is 11%, while the inflation rate is expected to be 4% per
year.

11. Property, in the form of unimproved land, is purchased at a cost of $8,000 and is held for
six years when it is sold for $32,600. An average of $220 each year is paid in property tax
and may be accounted for at an interest of 12%. The income tax rate on the long term
capital gain is 15% of
12. The auto of your dreams costs $20,000 today. You have found a way to earn 15% tax free
on an “auto purchase account”. If you expect the cost of your dream auto to increase by
10% per year, how much would you need to deposit in the “auto purchase account” to
provide for the purchase of the auto 5 years from now?

13. On January 1, 1975 the National Price Index was 208.5, and on January 1, 1985 it was
516.71. What was the inflation rate, compounded annually, over that 10-year period? If
that rate continues to hold for the next 10 years, what National Price Index can be
expected on January 1, 1995?

14. An automobile that cost $19,500 in 2004 has an equivalent model four years later in 2008
that cost $22,250. If inflation is considered the cause of the increase, what was the
average annual rate of inflation?
15. A project has been analyzed assuming 6% inflation and is found to have a monetary
internal rate of return (IRR) of 22%. What is the real IRR for the project?

16. A project has been analyzed assuming 6% inflation and is found to have a monetary
internal rate of return (IRR) of 22%. What is the real IRR for the project?

17. The real interest rate is 4%. The inflation rate is 8%. What is the apparent interest rate?

18. A solar energy book gives values for a solar system as follows: initial cost, $6,500; initial
fuel savings, $500/year; expected life, 15 years; value of money, 10%; inflation, 12%;
and incremental income tax rate, 25%. If we define the payback condition as the time
required for the present worth of the accumulated benefit to equal the accumulated
present worth of the system cost, what is the time required to reach the payback
condition? Since the income tax benefit is related to the annual interest expense, treat it as
a reduction of the annual cost.
19. The capital cost of a wastewater treatment plant for a small town of 6,000 people was
estimated to be about $85/person in 1969. If a modest estimate of the rate of inflation is
5.5% for the period to 1984, what is the per capita capital cost of the treatment plant in
1984?

20. Jack purchases a lot for $40,000 cash and plans to sell it after 5 years. What should he
sell it for if he wants a 20% before-tax rate of return, after taking the 5% annual inflation
rate into account?

21. Your company estimates it will have to replace a piece of equipment at a cost of $800,000
in 5 years. To do this a sinking fund is established by making equal monthly payments
into an account paying 6.6% compounded monthly. How much should each payment be?
($11,290.42)
22. Betty deposits $2000 annually into a Roth IRA that earns 6.85% compounded annually.
Due to a change in employment, these deposits stop after 10 years, but the account
continues to earn interest until Betty retires 25 years after the last deposit is made. How
much is in the account when Betty retires? ($143,785.10)

23. You make monthly deposits of $100 into an annuity and after 30 years wish to
accumulate $160,000. What annual rate compounded monthly will be required to do this?
(0.083480405763)
24. You desire to save $200,000 for retirement. You can afford to save $125 a month into a
mutual fund that averages7.75% compounded monthly. How many years will be needed
to do this? (31.426831333098)

25. You decide to buy a TV set for $800 and agree to pay for it with 18 equal monthly
payments at 1.5% interest per month on the unpaid balance. How much are your
payments? ($51.05) What is the total interest paid? ($118.90)

26. American Capital offers a 7-year ordinary annuity with a guaranteed rate of 6.35%
compounded annually. How much should you pay for one of these annuities if you want
to receive payments of $10,000 annually over the 7- year period? ($55,135.98)
27. Al Bundy says he paid $25,000 down on a new house and will pay $525 per month for 30
years. If interest is 7.8% compounded monthly, what was the selling price of the house?
($97929.78)

28. You have found the house of your dreams. The selling price is $175,000 with an interest
rate of 5.5% compounded monthly. Determine the monthly house payment if the loan is
for: a) 30 years ($993.64) b) 15 years ($1429.90)
 29. At the time of retirement, a couple has $200,000 in an account that pays 8.4%
compounded monthly. If they decide to withdraw equal monthly payments for 10 years,
at the end of which time the account will have zero balance, how much should they
withdraw each month? ($2469.04)

What is Compound Interest?

Interest is the additional money paid by organisations like banks or post offices on money
deposited (kept) with them. Interest is also paid by people when they borrow money. When the
interest is calculated on the previous year’s amount, the interest is called compounded or
Compound Interest (C.I.).

The formula for finding the amount on compound interest is given by:
A = P[1 +(R/100)]n

This is the amount when interest is compounded annually.

Compound interest (CI) = A – P

30. Find the compound interest (CI) on Rs. 12,600 for 2 years at 10% per annum
compounded annually.

31. At what rate of compound interest per annum, a sum of Rs. 1200 becomes Rs. 1348.32
in 2 years?
32. A TV was bought for Rs. 21,000. The value of the TV was depreciated by 5% per
annum. Find the value of the TV after 3 years. (Depreciation means the reduction of
value due to use and age of the item)

33. Find the compound interest on Rs 48,000 for one year at 8% per annum when
compounded half-yearly.
34. Find the compound interest on Rs. 8000 at 15% per annum for 2 years 4 months,
compounded annually.

35. Some seed cleaning equipment was purchased in 2009 for $8,500 and is depreciated by
the double declining balance (DDB) method for an expected life of 12 years. What is the
 book value of the equipment at the end of 2014? Original salvage value was estimated to
be $2,500 at the end of 12 years.

36. Hoppy Hops, Inc. purchased hop harvesting machinery for $150,000 four years ago. Due
to a change in the method of harvesting the machine was recently sold for $37,500.
Determine the MACRS deprecation schedule for the machinery for the four years of
ownership. Assume a five year property class. What is the recaptured depreciation or loss
on the sale of the machinery?
37. An asset is purchased for $100,000. The asset is depreciated using MACRS depreciation
and a five year recovery period. At the end of the third year of use the business changed
its product mix and disposed of the asset. The depreciation allowed in the third year is
nearest to

38. Two years ago Nuts-2-U Inc. purchased nut-cracking equipment at a total cost of
$80,000. The equipment was depreciated using MACRS with a recovery class of 3 years
and an anticipated end of useful life value of $8,000. The company has decided the
equipment is no longer needed and wishes to determine the minimum value they can
accept for the equipment that will result in no loss on the sale. The minimum selling price
for the equipment is nearest to.
39. Thick Trunk Sawmill purchases a new automated log planer for $95,000. The asset is
depreciated using straight-line depreciation over a useful life of 10 years to a salvage
value of $5,000. The book value at the end of year six is nearest to.

40. In the production of beer, a final filtration is accomplished by the use of “Kieselguhr” or
diatomaceous earth, which is composed of the fossil remains of minute aquatic algae, a
few microns in diameter and composed of pure silica. A company has purchased a
property for $840,000 that contains an estimated 60,000 tons. Compute the depreciation
charges for the first three years, if a production (or extraction) of 3,000 tons, 5,000 tons,
and 6,000 tons are planned for years 1, 2, and 3, respectively. Use the cost-depletion
methods, assuming no salvage value for the property.

41. crusher for the third year of its life and the book value at the end of 8 years, using SOYD
depreciation.
42.