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Question Number 2 – Registration No. ending with 1 and 5

Question Number 3 - Registration No. ending with 3 and 8

Question Number 4 – Registration No. ending with 2 and 9

Question Number 5 – Registration No. ending with 4 and 6

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 Assignment Test 2

1. Simran, who owns a boutique, bought an old house to use as her business office. She found
that the ceiling was poorly insulated and that the heat loss could be cut significantly if 6 inches
of foam insulation were installed. She estimated that with the insulation, she could cut the
heating bill by $40 per month and the air-conditioning cost by $25 per month. Assuming that
the summer season is three months (June, July, and August) of the year and that the winter
season is another three months (December, January, and February) of the year, how much
can Simran spend on insulation if she expects to keep the property for five years? Assume that
neither heating nor air-conditioning would be required during the fall and spring seasons. If
she decides to install the insulation, it will be done at the beginning of May. Simran’s interest
rate is 9% compounded monthly.
2. Mr. Ratan deposits an amount of Rs. 50,000 for five years, starting from the end of the year 1
in a saving account that pays 6% interest compounded monthly. Two years after the last
deposit he makes another deposit of Rs. 40,000 on a quarterly basis and the amount increases
by Rs. 1000 every quarter for the next two years. Two years after the last deposit he makes
another deposit of Rs. 25,000 on a semiannual basis. Four years after the 25,000 deposit, half
of the accumulated amount is transferred to a fund that pays 8% interest compounded
monthly. How much money will be in each account six years after the transfer?

3. You want to open a savings plan for your future retirement. You are considering the following
three options:
Option 1: Deposit Rs. 1,000 at the end of each quarter for the first 10 years, then you
leave the amount accumulated in the account for the next 15 years.
Option 2: Do nothing for the first 10 years. Then deposit Rs. 6,000 at the end of each year
for the next 10 years and increase the deposit by Rs. 500 every year for the next five years.
Option 3: Deposit Rs. 100 at the end of each quarter for the first 10 years and then
increase the deposit amount by Rs. 500 every month for the next 15 years.
If your deposits earn an interest rate of 12% compounded monthly for option 1, 12%
compounded quarterly for option 2 and 12% compounded semi-annually for option 3,
what is the accumulated amount in each of the options?

4. Mr. Jacob bought a piece of machinery for his manufacturing plant. The machine was bought
by borrowing a loan that was to be repaid in 20 equal quarterly payments at 12% compounded
quarterly. Four years later he decided to sell the used machinery to his friend Chris. Mr. Chris
made arrangements with Mr. Jacob’s bank to refinance the loan and to pay Mr. Jacob’s unpaid
balance by making 16 equal, quarterly payments also at 12% compounded monthly. Three and
a quarter years later, he resold the machine to Mr. Robert. Robert paid the bank $2,000 cash
to pay the loan balance. What was the amount of Mr. Jacob’s loan to purchase the machinery
when it was new?
5. ABC Limited has decided to replace the machine it uses currently. After some search, it
selects an acceptable machine that costs $62,500. The machine that is currently in use has
about 1200 kgs of copper pipes that can be salvaged and sold for $4.75/kg and that money
received thus is used as a down payment on the new machine. The rest of the parts of the
old machine can be sold as scrap for $3,000. This amount also will be used as the down
payment for the replacement machine. The remaining money will be obtained through a 10-
year loan with payments made quarterly at an interest rate of 8% compounded quarterly.
After 5 and a half years, suppose, ABC Limited decides to pay off the remaining payments at
once. Calculate this amount paid by the company to the bank in order to pay off the loan.
Also find the annual effective interest rate on the loan.