2) a) Suppose a firm has a policy of depositing a uniform amount($5000) of its e

Question

2) a) Suppose a firm has a policy of depositing a uniform amount($5000) of its excess funds in a bank account at the end of every years, determine the worth of theses deposits over a period of 5 years at an annual interest rate of 5% compounded semi-annually.
b) How will the estimated value be affected if the deposits were made at the beginning of each years?

c) A firm is considering the purchase of a machine with a price tag of $18,500. The firm is able to make a down payment of $3,500 and the balance is to be financed with a bank credit at an interest rate of 8.25%. If the load is to be repaid in 48 monthly equal installments, compute the monthly payment.

Explanation / Answer

(a)given PV = 5000 r=5% n=8 FV = PV (1+(r/n))^n where FV = Future Value PV = Present Value r = annual interest rate n = number of periods FV = 5000(1 + 5/8)^8 + 5000 (since for last 5000 there is no interest) =248106.69 (b)PV = 5000 r=5% n=10 FV = 5000(1 + 5/10)^10 =288325.19 (c)balance = 15,000 monthly EMI is 368

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