Exercise 2
1. A family wishes to accumulate $50,000 in a college education fund at the end of 20 years.
If they deposit $1000 in the fund at the end of each of the first 10 years and $1000 + X in
the fund at the end of each of the second 10 years, find X to the nearest dollar if the fund
earns 7% effective. ($ 651.72)
2. The cash price of a new automobile is $10,000. The purchaser is willing to finance the
car at 18% convertible monthly and to make payments of $250 at the end of each month
for four years. Find the down payment which will be necessary. ($1489.36)
3. If x a
n
=

and y a
n
=
 2
express d as a function of x and y.


.

\

+
y x x
y x
2
2
2
4. (a) Show that
    
) 1 (
n m
n
n
m
m n m
s a i s v a a + = =
\

o
iP ln
1
13. A benefactor leaves an inheritance 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 n years A,
B, and C share each payment equally. All payments after n years revert to D. If the
present values of the shares of A, B, C, and D are all equal, find (1 + i)
n
. (4)
14. A level perpetuityimmediate is to be shared by A, B, C, and D. A receives the first n
payments, B the second n payments, C the third n payments, and D all payments
thereafter. It is known that the ratio of the present value of Cs share to As share is .49.
Find the ratio of the present value of Bs share to Ds share. (30/49)