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**Solutions to selected problems
**

QUESTION 4

Annual deposits of $1,000 are made in an account that pays 4% compounded quarterly. How

much money should be in the account immediately after the fifth deposit?

a)

b)

c)

d)

$5,357

$5,432

$5,233

$5,364

**Solution: i=4% compounded quarterly
**

ieff=(1+.04/4)4 – 1=0.0406 =4.06%

F=1000[{(1+i)n-1}/i]=1000[(1.2201-1)/.0406]=$5432 (b)

QUESTION 5

How much should be deposited each year for 12 years if you wish to withdraw $309 each

year for five years, beginning at the end of the 15th year? Let i=8% per year.

a)

b)

c)

d)

$55.74

$45.62

$64.38

$68.72

**P14=309(P/A,8%,5)=309(3.9927)=1233.74
**

P12= P14 (P/F,8%,2)=1233.74(.8573)=1057.68

A=1057.68(A/F,8%,12)=1057.68(.0527)=55.72

(a)

75 P0= P3(P/F.8%.000(A/P.1%.13)=4725.74 (b) .29(.7938)=4725. The answer is closest to (A) (B) (C) (D) $425 $597 $683 $846 P3=500(P/A.977)=5952.”A”) which is equivalent to a gradient series in which the first payment is $500. An equal year-end amount is desired at i=8% per year over the entire 13-year period.1265)=597.000 five year loan? The annual interest rate is 12% nominal compounded monthly a) $17.75 A= P0(A/P.933 © QUESTION 9 Find the equal year-end amount (i.8%. The first payment of $500 does not occur until 4 years from the present.10)+100(P/G.8%.QUESTION 8 What is the principal remaining after 20 monthly payments have been made on a $15.098 b) $14.333 i=1%/month A=15.8346)=$10.7101)+100(25. G = +$100/yr and there is a total of ten payments.8%.3)=5952.40)=333(32.e.60)=15000(.933 d) $13.1%.10)=500(6.0222)=$333 Principal remaining after 20 monthly payments=333(P/A.75(.579 c) $10.

2)+100(P/F.i%.4)=0 and solve for i by trial and error. it is obvious that i=0% So the problem can be solved without trial and error process! (a) .i%.i%.3)+50(P/F.QUESTION 10 Consider the following cash flow Year 0 1 2 3 4 Cash Flow -600 +300 +150 +100 +50 The rate of return for the situation by the cash flow is closest to a) 0% b) 1% c) 2% d) 3% PW=-600+300(P/F.1)+150(P/F. Since the arithmetic sum of the cash follow is zero.i%.

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