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Problem set 1
1 . Consider the function a(t)=t^2+t+1
a.
b.
c.
d.
e.
2. What nominal rate compounded semiannualy will yield the effective rate 6%
3. if the nominal rate is 3% converted once each two years, find the effective rate
4. Accumulate 1500 for 2 years and 10 months at 3 % compounded annually
5. On june 1, 1998, X borrows 2000 and agrees to pay the compound amount on
whatever date he settles his account. It interest is at the rate 6% compounded
quarterly, find what x should pay on august 1, 2002
6. 5000 was borrowed on may 15, 1998; it was to be repaid on august 15, 2001 with
accumulated interest at 4% COMPOUNDED QUARTERLY. No payment was made until
august 15, 2003. What is due at that date then if money is worth 5% compounded
semiannually after august 15, 2001
7. Two funds each have 1000 deposited in them,. One fund accumulates at rate
equal to a force of interest rate of 2% per annum and the other accumulates at
force of interest rate equivalent to an annual effective rate of interest of 2% per
annum. What is the difference in the size of the two funds after 10 years?
t
8. if
6
94 6t
9. At the force
, a unit will be doubled in 23.1 years. In how many years will a unit
Ln (1.02)=0.0198
10. if a note for 1000 due in 2 years can be purchased now for 810 at a nominal rate
of discount of 2d% compounded quarterly, what will be the amount of 1000 after 4
years at a rate of discount of d% compounded semiannually?
Problem set 2
1. Henrita borrows 6500 in order to buy furniture. She wishes to pay the loan
back by means of 12 annual payments, the first to be made one year after
the loan is taken out. If i=0,13, find the amount of each payment
2. Alphose deposits 450 in a bank account at the beginning of each year,
starting in 1997 and continuing for 20 years. If i=0.08, find the amount in his
account at the end of 2016
3. Haris wishes to accumulate 85000 in a fund at the end of 25 years. If she
deposits 1000 in the fund at the end of the first 10 years, and 1000 + X at
the end of each of the last 15 years, find X if the fund earns 7% effective
4. A loan of 25000 is to be repaid by annual payments at the end of each year
for the next 20 years. During the first 5 years the payments are K per year;
during the second 5 years the payments are 2K per year; during the third 5
years, 3K per year; and during the fourth 5 years, 4K per year. If i=0,12, find
K
5. Deposits of 1000 are placed into a fund at the end of each year for the next
25 years. Five years after the last deposit, annual payments commence and
continue forever. If i=0.09, find the amount of each payment
6. Wilbur leaves an ingeritance to four charities, A,B,C, and D. The total
inheritance is a series of level payments at the end of each year forever.
During the first 20 years, A,B, and C share each payment equally. All
payments after 20 years revert to D. If the present value of the shares of
A,B,C, and D are all equal, find i?
7. At time t=0, paul deposits P into a fund crediting interest at an effective
annual interest rate of 8%. At the end of each year in years 6 through 20,
paul withdraws an amount sufficient to purchase an annuity-due of 100 per
month for 10 years at a nominal interest rate of 12% compounded monthly.
Immediately after the withdrawal at the end of year 20, the fund value is
zero. Calculate P
final deposit. If the rate of interest is 12% per year convertible quarterly, find
the number of deposits required and the size of the final deposit
3. At what effective yearly rate of interest is the present value of 300 paid at the
end of every month, for the next 5 years, equal to 15000. Find the exact
answer and use the linear interpolation
4. A fund of 5000 is to be accumulated by n annual payments of 50 followed by
another n annual payments of 100, plus a final payment. As small as
possible, made one year after the last regular payment. If i=0.08 find n and
the amount of the final payment. Payments are made at the end of the year
5. What single sum should be deposited on july 1, 1991 at 3 % effective
interest to create a fund sufficient to allow 12 quarterly withdrawals of 525
each, the first on October 1, 1994
6. A new car costs 3600. If money will earn 5% effective, what level amount
should a man invest at the beginning of each month in order to be able to
buy a nem car at the end of 3 years?
7. Which of the following is a correct expression for the accumulated value on
January 1, 2003 of a payment of 50 payable semi annually beginning January
1, 1995 with the final payment January 1 , 2003. Interest at rate i per annum
compounded quarterly. All symbols at rate i(4)/4
8. A man wishes to make a deposit to a trust company account at the end of the
current year and at the end of each of the ensuing 20 years, so that his son
may make 5 withdrawals of 2500 each. Starting 17 years from now. If the
trust company pays 4% compounded semi annually. What annual deposit
should be make
9. A television set sells for 390,00 cash or on terms of 25 a month for ane half,
years with no down payment. How much would a person have to pay monthly
over the same period if he paid 130,00 in cash at the time of purchase
10.A machine costing 3000 must be replaced t the end of every 8 years. The
scrap value of the machine at time of replacement is 600. At what effective
annual rate of interest would it be equally economical to use a similar
machine costing 4000 with a life of 8 years and a scrap value of 1900
Problem set 4
1. A man borrows money from a bank. He receives the money in annual
installment, taking x each time. He repays the loan with 20 annual payments,
the first one equal to 100 and the payments increasing by 100 each year. If
the first payment is due one year after the last installment is given out, and if
i-0,132 find x
2. Find the value one year before the first payment of an annuity where
payments, start at 1, increase by annual amount of 1 to a payment of n, and
then decrease by annual amounts of 1 to a final payments of 1
3. Find the present value of an increasing perpetuity which pays 1 at the end of
the fourth year, 2 at the end of the eighth year, 3 at the end of the twelfth
year, etc. if i=0.06
4. An annuityprovides for 15 annual payments. The first of these payments is
200, and each subsequent payment is 5%less than the one procceding it.
Find the accumulated value of this annuity at the time of the final payment if
i=0.09
5. Marry purchases an increasing annuity immediate for 50000 that makes
twenty annual payment as follows:
i)
P,2P,10P in years 1 through 10; and
ii)
10P(1,05),10P(1,05)^2,.,10P(1,05)^10 in years 11 through 20
The annual effective interest rate is 7%for the first 10 years and 5%
thereafter
Calculate P
6. Perpetuity x has annual payments of 1,2,3, at the end of each year.
Perpetuity y has annual payments of q,q,2q,2q,3q,3q,at the end of each
year. The present value of x is equal to the present value of Y at an annual
effective interest rate of 10%. Calculate q
7. Brian buys a 10 year decreasing annuity immediately with annual payments.
For the first 11 years, payments remain constant at 11. At an annual effective
interest rate of I, both annuities have a present value of x. calculate x?
8. A continuous n-year annuity pays 1-kt at time t, 0<=t<=n. the present value
of the annuity is equal to f-g-h, where
F is a perpetuity of payable continuously; and
G is an n-year deffered perpetuity of (1-kn) payable continuously. Calculate h?
Problem set 5
1
A man borrows 10000 and promises to pay the debt with interest at 4%
effective in five yearly payments. Find the balance due after the third
payment?
For the same problem as number 1, find the amount of interest contained in
first payment?
A debt of 5000 will be amortized by 12 semi-annual payments, the first due
at the end 3 years. If money is worth 5% compounded semi annually, find
6. henry borrows 5000 at 14% per year, and wishes to pay it back with 6 equal
annual payments, the first due in one year. Construct an amortization schedule for
this loan?
7. a loan is being repaid with 30 equal annual installment. The principal portion of
the 11th payment is 247,13 and the interest portion is 352,87. Find i?
8. john borrows 15000 from a trust company at 17% effective annually. He agrees to
pay the interest annually, and to build up a sinking fund which will repay the loan at
the end of 15 years. If the sinking fund accumulates at 12% annually, find:
a. the annual interest payment
b the annual sinking fund payment
c. His total annual outlay
d. The annual amortization payment which would pay off this loan in 15
years
9. A loan of 10000 is taken out on march 1 1995 at an effective rate of interest
of 8% per year. Interest is paid annually, and a sinking fund is established to
repay the principal on march 1 2002. Payments are made annually into the
fund begging on march 1 1996 and the fund earns interest at 9% per year
a. Find the amount of each ayment made to the sinking fund
b. Find the total amount the borrower must pay each year
c. From the point of view of the borrower, what rate of interest is she really
paying each year?