Assignment on Math Solution

Course Title : Principle of Finance

Course Code : FIN 2103

Submitted To
Ranet John Paul Gomes
Lecturer, Department of Business Administration
Notre Dame University Bangladesh

Submitted By
Joy Chowdhury
ID – 193010020
Batch – 15
Dept: Business Administration
Notre Dame University Bangladesh

Date of submission
15 December, 2020
 1. If you buy a factory for $250,000 and the terms are 20% down, the balance to be paid
off over 30 years at a 12% rate of interest on the unpaid balance, what are the 30
equal annual payments?

Answer:

Here,

12
R = 12% = 100
= 0.12

N= 30

20% down = (250000 × 20%) = 50000

= (250000 – 50000)

= 200000.

We know,

1
1− (1+𝑟)𝑛
PV of Annuity = 𝐶 × 𝑅

1
1−
(1+0.12) 30
Or, 200000 =𝐶× 0.12

Or, 200000 = 𝐶 × 8.0551839675

200000
Or, C =
8.0551839675

Or, C =24828.73.

Answer: $24828.73.
 3. On January 1, 1985, a graduate student developed a financial plan which would
provide enough money at the end of his graduate work (January 1, 1990) to open a
business of his own. His plan was to deposit $8,000 per year, starting immediately,
into an account paying 10% compounded annually. His activities proceeded
according to plan except that at the end of his third year he withdrew $5,000 to take a
Caribbean cruise, at the end of the fourth year he withdrew $5,000 to buy a used
Camaro, and at the end of the fifth year he had to withdraw $5,000 to pay to have his
dissertation typed. His account, at the end of the fifth year, will be less than the
amount he had originally planned on by how much?

Answer:
R= 10%
= 0.10

𝐹𝑣 3 = 𝑝𝑉 (1 + 𝑅)𝑛 = 5000(1+0.10)2 = 6050

𝐹𝑣 4 = 𝑝𝑉 (1 + 𝑅)𝑛 = 5000(1+0.10)1 = 5500
𝐹𝑣 5 = 𝑝𝑉 (1 + 𝑅)𝑛 = 5000(1+0.10)0 = 5000

End of the fifth year = 16550

Answer: $16550
13. Starting on January 1, 1987, and then on each January 1 until 1996 (10 payments), you
will make payments of $1,000 into an investment which yields 10 percent. How much will
your investment be worth on December 31 in the year 2006?
Answer:

Here,
C= 1000
R= 10% = 0.10
N= 10
We know,
(1+𝑟)𝑛 −1
FV of Annuity = C ×
𝑅

(1+0.10)10 −1
= 1000 × 0.10

= 15937.424601

On the other hand,

PV= 15937.424601
R= 10% = 0.10
N= 11
We know that,

FV = PV(1 + 𝑅)𝑛

= 15937.424601 × (1 + 0.10)11

= 15937.424601 × 2.853

= 45469.472

Answer: $45469.472
16. John Roberts is retiring one year from today. How much should John currently have in a

retirement account earning 10 percent interest to guarantee withdrawals of $25,000 per year

for 10 years?

Answer:

Here,
C= 25000
R= 10% = 0.10
N= 10

We Know,
1
1− (1+𝑟)𝑛
PV of Annuity = 𝐶 ×
𝑅
1
1− (1+0.10)10
= 25000 ×
0.10

= 153614.1776

Answer: $153614.1776
22. Your bank has offered you a $15,000 loan. The terms of the loan require you to pay back

the loan in five equal annual installments of $4,161.00. The first payment will be made a

year from today. What is the effective rate of interest on this loan?

Answer:

Here,
PV= 15000
C= 4161.00
N=5
R=?
If,
10% = 15773.46
11% = 15378.62
12% = 14999.47

We Know,
1
1− (1+𝑟)𝑛
PV of Annuity = 𝐶 ×
𝑅
1
1−
(1+0.12)5
= 4161.00 ×
0.12

= 14999.47

Answer: 12%
26. Your grandmother is thrilled that you are going to college and plans to reward you at

graduation in 4 years with a new car. She would like to set aside an equal amount at the

completion of each of your college years. If her account earns 11.5 percent and the new car

will cost $30,000, how much must she deposit each year? Assume her first deposit is in

exactly one year.

Here,

FV = 30000

N=4

R = 11.5 = 0.115

We know,

(1+𝑟)𝑛 −1
FV of Annuity = C ×
𝑅

(1+0.115)4−1
Or, 30000 =C× 0.115

Or, 30000 = C × 4.7442

30000
Or, C =
4.7442

Or, C = 6323.51

Answer: $6323.51
 5. You have $1,000 invested in an account which pays 8% compounded annually. You

have found an equally safe deposit which will pay 8%, quarterly compounding, for 2 years.

How much additional interest will you earn by shifting accounts?

Answer:

Here,

PV = 1000

R = 8% = 0.08

N=2

We know,

FV = PV(1 + 𝑅)𝑛

= 1000 (1 + 0.08)2

= 1166.4

If,

PV = 1000

R = 2% = 0.02

N=8

We know,

FV = PV(1 + 𝑅)𝑛

= 1000 (1 + 0.02)8

= 1171.659381

Difference = (1166.4 - 1171.659381)

= 5.26

Answer: 5.26
 2. You start saving now for your college education. You will begin college at age 18

and will need $4,000 per year at the end of each of the next 4 years. You will make a

deposit 1 year from today into an account which pays 6% compounded annually and

an identical deposit each year until you start college. If an annual deposit of $1,987

will allow you to reach your goal, how old are you now?

Here,

C = 1987

PV = 1987

FV = 4000

R = 6% = 0.06

We know that,

FV = PV(1 + 𝑅)𝑛

Or, 4000 = 1987(1+ 0.06) n

Or, 4000 / 1987 = (1+ 0.06) n

Or, 2.013 = (1.06) n

Or, log (1.06) n = log 2.013

Or, n log (1.06) = log 2.013

log 2.013
Or, n =
log 1.06

= 12 years

Answer: 12 years.
 7. Visser Distributors is financing a new truck with a loan of $10,000 to be repaid in 5

annual installments of $2,505. What annual interest rate is the company paying?

Answer:

Here,

C = 2505

R = 9% = 0.09

We Know,
1
1− (1+𝑟)𝑛
PV of Annuity = 𝐶 ×
𝑅
1
1− (1+0.9)5
= 2505 ×
0.09

= 9743.57

1
1− (1+𝑟)𝑛
PV of Annuity = 𝐶 ×
𝑅
1
1− (1+0.8)5
= 2505 ×
0.08

= 10001.73

So, interest rate is 8%

34. If you have $5,436 in an account that has been paying an annual rate of 10%,

compounded continuously, since you deposited some funds 10 years ago, how much was the

original deposit?

Answer:

We know,

FV = 𝜌𝑣 × ⅇ 𝑟𝑛

Or, 5436 = 𝜌𝑣 × ⅇ 0.1×10

Or, 5436 = 𝜌𝑣 × 2.7183

5436
Or, PV =
2.7183

= 1999.78

Answer: $1999.78