Professional Documents
Culture Documents
PV = Present Value
r = interest rate
n = time or years
P = principal
All values are in GHS
Q1.a. FV = p0 (1 + ), = 1000 (1 + 0.04)20,
FV = 1000 (2.191) = 2192.12
Therefore, interest is equal to FV Principal
Interest = 2191 1000 = 1191
b. Interest = p x r x t, annually interest = 1000 x 0.04 x 1 = 40
Total interest = 1000 x 0.04 x 20 = 800
C. The difference in answer a) and b) is that, in a) the interest component is reinvested with the
principal and accumulated to GHS 1191, while in b) the interest does not reinvest but only
accumulate to GHS 800.
Q2. FV = p0 (1 + ) , 35 = 20(1+r)10
35
= (1+r)10 ; 1.75 = (1+r)10
20
10
1.75 = 1 + ; 1.05755 = 1 + r
1.05755 1 = r;
r = 0.05755 or 5.75%
FVAN = 85912.35
b) Number of years invested = 70 45 = 25
[ ( + . )] [ ( + .)]
FVAN = ; ; 1500(98.347)
. .
FVAN = 147520.58
[ ( + )] [ ( + .)]
c) FVAN = = 85912.35
.
If this continue to invest for additional five years, FV of 85912.35 = 85912.35 (1.1)5
Fv = 138362.69. The additional money will be 138362.69 85912.35 = 52450.34
9
[ ( + )]
Q15. Future value factor Annuity (FVan) =
[ ( + )]
Q16. Present value of Annuity = =
[ ( . )] [ ( . )]
PVan = + = 1000(4.622879) + 5000(4.622879)
. .
[ ( + )] [ ( .)]
Q18. Alternative A. PVan = =
.
PMT = 10,185.23
100000
For 25years at 9% PMT = 1 ( .) = 100,000
9.8225
= 10180.62
.09
At 25years, PMT = 10180.62.
The difference in the annual payment is 10185.23 10180.62 = 4.59
Q20. PV = 165000, PMT = 30000
[ ( + )] [ ( . )]
PVan = , = 165000 =
.
165000 1 (1.06)n
= =
30000 0.06
0.1739
= -n, n = 6.87years
0.0253