1.) South Penn Trucking is financing a new truck with a loan of $10,000 to be re

Question

1.) South Penn Trucking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end of year installments of $2,504.56. What annual interest rate is the company paying?

2.) Assuming a 12% required return, what is the present value of the following uneven annual cash flows?

YearCash Flow
1$250
2300
3350
4400

3.) With the same information in the previous question, what is the future value of these cash flows?

4.) If you start to invest $4,000 each year to your IRA at the age of 26, after 40 years when you retire, how much money you will have if the annual interest rate is 8%?

5.) My credit card balance is $2377.91. If I chose to pay off the balance at the minimum monthly payment of $40 per month, how many months must I pay before the credit card balance is paid off? I pay 19% compounded monthly on this card.

Explanation / Answer

1. Loan amount = $10000

Instalments = $2504.56

Time = 5yrs

Thus interest rate = 8%

2. Year Cash Flow is
$1250
2300
3350
4400

Interest rate = 12%

Thus PV = $8130.36

3. Assuming it is yearend cash flows

Thus FV = (1250*1.12^3) + (2300*1.12^2) + (3350*1.12) +4450 = $12793.28

4. Annual investment = $4000

Time = 40-26 = 14 yrs

Interest rate = 8%

Thus FV = $96859.68

5. Interest rate = 19% per year

Thus monthly interest rate compounded = 1

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