7. In purchasing a speedboat, J.R. made a down payment of $3500 and will make $480.

96
payments every 3 months for 2 years. Interest is 10% compounded quarterly.
a) What was the purchase price (cash value) of the speedboat?
b) How much interest will be paid?

Boat = down payment + PV of quarterly payments for 2 years

P/Y = 4
a) boat purchase price = 3500 + 3448.55
C/Y = 4 = $6948.55

N = 4x2 = 8
b) so the boat actually cost $6948.55, but the
I/Y = 10 guy paid more that that because he took 2
years to pay for it…… the extra he paid is the
*PV = $3448.55 interest you are being asked to calculate
paid = down payment + all the quarterly payments
PMT = 480.96 = 3500 + (480.96 x 8)
= $7347.68
FV = 0 Interest = 7347.68 – 6948.55 = $399.13

8. Jamie saved $420 per month during her 4 years of high school, depositing into
an account offering 6% compounded monthly. When she enters college, she will
leave the account untouched for 2.5 years.
a) How much did Jamie have in the account after 2.5 years in college?
b) How much did Jamie contribute?
c) How much will be interest?
0 4y 6.5y
--------- saving $420 per month --------------| ---no more payments—
(but still gaining interest)
a) b) Jamie contributed
= 420 x 48 = $20160
P/Y = 12
C/Y = 12 c) interest gained
= 26388.27 - 20160
N = 12x4 = 48 The $22721.09 is gaining interest = $6228.27
I/Y = 6 For 2.5 more years…… but this is
just regular compound interest
PV = 0 (not an annuity), so we can use i = 6% / 12
FV = PV (1 + i)n
PMT = 420 n = 2.5x12
= 22721.09(1 + 0.005) 30
*FV = 22721.09
(after 4 years of saving)
= $26388.27