MATH 1091: Business Mathematics 1

Student’s Name: Calculator make and model:

Assignment 3 Total marks: 100

1. Complete the sentence below. (1 mark)

An annuity in which payments are made and interest is compounded

at the end of every month is known as:

Ordinary annuity

2. J. Carson donated $650,000 for annual scholarships, and this money

was invested at 10.5%, compounded annually. What is the name for
this kind of arrangement? (1 mark)

It’s a perpetuity. There’s one annual contribution for which the length is
not specified, and the investment can compound perpetually.

3. What is this formula used for? (1 mark)

This formula Is used for finding the present value of a deferred annuity, it
discounts the value of the annuity over deferred period.

4. How would you recognize an annuity due? (1 mark)

The payments are made at the beginning of the payment intervals.

5. Calculate the amount of a 15-year annuity where $150 payments are

made at the beginning of every month and interest is compounded
monthly at 13%. (4 marks)

FV = ? t = 15 R = 150 m = 12 i = 0.13/12 n=
12*15 FVn (due) = $83,352.19

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2 Assignment 3

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MATH 1091: Business Mathematics 3

6. Determine the interest included in the amount of a 12-year annuity that has payments
of $500 at the end of every 6 months and accumulates interest semi-annually at 16%
(6 marks)

R= 200 t=10 i= 0.14/2

FVn = $ 8,199.10 minus payments and time

Interest earned= $4199.10

7. If money is worth 14.5%, compounded quarterly, and deposits of $50

are made at the beginning of every 3 months for 12 years, what is the
present value of the annuity? (4 marks)

R = 50 m=4 i = 0.145/4 t = 12 n = 48
PVn (due) = $1170.59

8. You wish to receive an amount of $2,400 a month for 12 years starting

at the end of your first month of retirement 18 years from now, how
much will have to be in the fund by the time you reach retirement
age? Assume that money is worth 16%, compounded monthly. (4
marks)

R = 2000 t = 10 i = 0.12/12 Ordinary Simple

PVn = $139,401.04

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4 Assignment 3

9. What would be the end-of-quarterly deposits you would have to make

for the next 20 years into an account paying 11.5% quarterly in order
to set up the annuity described in Problem 8? (4 marks)
t = 20 i = 0.115/4 Ordinary Simple FVn =
$139,401.04 R = $463.02

10. How many years would it take you to build up $60,000 if you
deposit $450 at the beginning of every 6 months and interest is paid
at 12.75%, compounded semi-annually? (8 marks)
FV = 60000 R = 450 i = 0.1275/2 Simple
Annuity Due n (due) = 35.536655 Divide by m
t = 17.768327 years or 18 years rounded

11. What is the value of a 60-month lease on property earning $1,750

at the beginning of each month if money is worth 14%, compounded
monthly? (8 marks)

R = 1750 m = 12 t=5 i = 0.14/12

Simple Ann Due PVn (due) = $76,087.23

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MATH 1091: Business Mathematics 5

12. Dianne purchased a car for $13,500 on September 3, 2010. She made a
down payment of $3,500 and agreed to repay the balance in 24 equal
payments on the 3rd of each month. If the interest rate being charged
on the loan was 18%, compounded monthly, what was the total interest
charge that she paid for the loan? (8 marks)

PV = 10000 t=2 i = 0.18/12 n = 24

Simple Annuity PV known, if payment is not made at time of
purchase,it would occur one month later.
R when PV is known = $499.24 times n = 24 payments =
$11,981.76 then minus $10,000.

Interest charged = $1981.76

13. Cheryl is going to purchase a travel trailer priced at $10,500. She has
saved $1,000 for a down payment and plans to repay the balance with
equal monthly payments. The maximum amount she can afford to
spend is $750 monthly, and because she has a poor credit rating, she
must pay 24%, compounded monthly.

(a) How long will it take her to get out of debt if the payments come at
the end of each month? (b) If the payments are to commence
immediately and continue at the beginning of each month, how long
will it take her to repay the debt? (c) Which option has the highest
interest cost and by how much? (8 marks)

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6 Assignment 3

R = 750 i = 0.02 m = 12 PV = 9500

a) n = 14.752407 periods, t = 1.23 years

b) n = 14.417571 periods, t = 1.20 years750 * 14.752407 – 9500 =

1564.31-750 * 14.417571 – 9500 = 1313.18= $251.13

c) The first one, the simple ordinary annuity pays more interest by
$251.13

14. A contractor is anticipating the upgrade of an earth moving

equipment to improve the overall efficiency of its operations and save
about $150,000.00 per month in labour cost. It is expected that the
equipment will last for 15 years, and then sold for scrap, for
approximately $50,000. If the value of money is 15%, compounded
monthly, what is the maximum price that the company should pay for
the machine? (10 marks)

Total PV= PVn+ PV scrap

Total PV= $9,384, 360.00 + $853.67

Total PV= $9,385,213.67

15. Find (a) the amount and (b) present value of an annuity of $350 per
month for 3 years if the first payment is due in 1.5 years from now

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MATH 1091: Business Mathematics 7

and the value of money is 12%, compounded monthly. (8 marks)

R = 350 t=3 i = 0.01 d = (1.5*12)-1

n = 36 Simple Annuity Deferred

PVn (def) = $8,897.73

FVn (def) = $15,076.91

16. Tony decided to deposit $11,000 at the end of 11 months and $250
per month thereafter. How many deposits will be required to have a
present value today of $16,868.68 if money is worth 17%,
compounded monthly? (8 marks)

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8 Assignment 3

17. A loan of $150,000 is to be repaid with 48 equal monthly payments.

The first payment is to be made at the end of the 8th month from the
date of the loan. What is the size of each payment if the interest rate
is 15%, compounded monthly? (8 marks)
PV = 150000 t=4 i = 0.15/12 m = 12
d=7

R (def) = $4553.88

18. What is the cash price for a stereo television that can be purchased
for $5000 down with monthly payments of $50 for 3 years? Assume
that the first payment is made today and that the interest rate is 20%,
compounded monthly. (8 marks)

PVn (due) = $1,367.83

Cash Price = $6,367.83

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MATH 1091: Business Mathematics 9

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