Faculty of Economics and Business

Universiti Malaysia Sarawak

Business Mathematics
EBQ1043
Tutorial 6

1. A student has a savings account earnings 9% simple interest. She must pay $1500 for first
semester tuition by September 1 and $1500 for second semester tuition by January 1.
How much must she earn in the summer (by September 1) in order to pay the first
semester bill on time and still have the remainder of her summer earnings grow to $1500
between September 1 and January 1?

2. Bill Casler bought a $2000 9-month certificate of deposit (CD) that would earn 8%
annual simple interest. Three months before the CD was due to mature, Bill needed his
CD money, so a friend agreed to lend him money and receive the value of the CD when it
matured.

a. What is the value of the CD when it matures?

b. If their agreement allowed the friend to earn a 10% annual simple interest return on
his loan to Bill, how much did Bill receive from his friend?

3. Which lump sum should be deposited in an account that will earn 9%, compounded
quarterly, to grow to $300,000 for retirement in 25 years?

4. If $10,000 had been invested in the Vanguard capital Opportunity Fund on September 30,
1997, it would have been worth $46,649.55 on September 30, 2007. What interest rate,
compounded annually, did this investment earn?

5. Today a typical family of four spends $600/ month for food. If inflation occurs at the rate
of 3%/ year over the next 6 yr, how much should the typical family of four expect to
spend for food 6 yr from now?

6. Find the effective rate corresponding to the given nominal rate.

a. 9% compounded quarterly
b. 8% compounded daily

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