4 How much do you have to deposit at the end of each year if you need $ 20,000 i
ID: 2818914 • Letter: 4
Question
4 How much do you have to deposit at the end of each year if you need $ 20,000 in 10 years, assuming k = 6%?
1,517.36
1,519.36
1,521.36
1,523.36
None of the above
5 How much do you have to deposit at the end of each year if you need $ 20,000 in 10 years, assuming k = 6%?
1,517.36
1,519.36
1,521.36
1,523.36
None of the above
6 What is the present value of a consol (perpetual bond), assuming it offers $ 20 at the end of every year for ever and k = 8%?
20
160
250
400
None of the above
7 In how many years will $2,500 become $8,000 if k=2.5% simple interest per year?
84 years
86 years
88 years
90 years
None of the above
8 What is the future value of $53,748 deposited today at the end of 14 years, assuming the rate of interest is 0.7 percent, using simple rate of interest?
59,005.30
59,015.30
59,025.30
59,035.30
None of the above
1,517.36
1,519.36
Explanation / Answer
4.
Future Value of Annuity = Annuity Payment * [ {( 1+ Rate of Interest) - 1 } / rate of Interest ]
$ 20,000 = Annuity Payment * [ { ( 1+6/100) ^ 10 ) -1} / 6%]
$ 20,000 = Annuity Payment * [ 13.18079494]
Annuity Payment = $ 20,000 / 13.18079494
= $ 1,517.359164
Hence the correct answer is 1,517.36
5.
Future Value of Annuity = Annuity Payment * [ {( 1+ Rate of Interest) - 1 } / rate of Interest ]
$ 20,000 = Annuity Payment * [ { ( 1+6/100) ^ 10 ) -1} / 6%]
$ 20,000 = Annuity Payment * [ 13.18079494]
Annuity Payment = $ 20,000 / 13.18079494
= $ 1,517.359164
Hence the correct answer is 1,517.36
6. Present Value = Amount / Rate of Interest
= $ 20 / 8%
= $ 250
Hence the correct answer is $ 250
7. In how many years will $2,500 become $8,000 if k=2.5% simple interest per year
Simple Interest = Principal * Rate of Interest * Time
= $ 2,500 * 2.5% * n
= $ 62.5 * n
Future Value = Simple Interest +Principal
$ 8,000 = ( 62.5 * n ) + $ 2,500
or $ 62.5 n = $ 8,000 - $ 2,500
or n = ( $ 8,000 - $ 2,500) /62.5
or n = 88 Years
Hence the correct answer is 88 years
8.
Simple Interest = Principal * Rate of Interest * Time
= $ 53,748* 0.7% * 14
= $ 5,267.304
Future Value = Simple Interest +Principal
= $ 5,267.304 + $ 53,748
= $ 59,015.304
Hence the correct answer is 59,015.30
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