Solutions Manual To Accompany Finite Mathematics An Applied Approach 3rd Edition 0321173341

Solutions Manual to accompany Finite Mathematics:
An Applied Approach 3rd edition 0321173341
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-an-applied-approach-3rd-edition-0321173341/
Solutions Manual to accompany Finite Mathematics: An Applied Approach 3rd edition 0321173341
Section 6.1 Simple and Compound Interest 383
Chapter 6 6. We have the following information:

Mathematics of Finance P = P, r = 0.06, m = 4, n = mt = 20
The compound interest formula gives us:

Exercises Section 6.1
A = P (1 + 0.06
4 ) = $ P (1.346855) .
20
1. We have the following information:

7. We have the following information for each part:
P = 2000, r = 0.075, m = 12, n = mt = 48
P = 800, r = 0.07, t = 12
a. The simple interest formula gives us:
A = 2000 (1 + )
0.075 48
= $ 2697.20 .
A = 800 (1 + ( 0.07)(12) ) = $1472.00 .
12

b. Compounding quarterly means: m = 4, mt = 48
P = 5000, r = 0.10, m = 1, n = mt = 8 The compound interest formula gives us:
A = 800 (1 + 0.07
4 )
48
The compound interest formula gives us: = $1839.68 .
A = 5000 (1 + 0.10
1 ) = $10, 717.94 .
8
c. Compounding monthly means: m = 12, mt = 144
A = 800 (1 + 0.07
12 )
144
P = 3000, r = 0.06, m = 4, n = mt = 48 = $1848.58 .
The compound interest formula gives us: 8. We have the following information for each part:
P = 4000, r = 0.09, t = 8
A = 3000 (1 + 0.06
4 )
48
= $ 6130.43 .
a. Compounding quarterly means: m = 4, mt = 32
P = 7000, r = 0.095, m = 1, n = mt = 15
A = 4000 (1 + 0.09
4 )
32
= $8,152.41 .
b. Compounding monthly means: m = 12, mt = 96
A = 7000 (1 + 0.095
1 )
15
= $ 27,309.25 . The compound interest formula gives us:
A = 4000 (1 + 0.09
12 )
96
5. We have the following information: = $8195.69 .
P = 6000, r = 0.12, t = 1
c. Compounding daily means: m = 365, mt = 2920
The simple interest formula gives us: The compound interest formula gives us:
A = 6000 (1 + ( 0.12)(1) ) = $ 6720.00 . A = 4000 (1 + 0.09

365 )
2920
= $8217.00 .
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384 Chapter 6 Mathematics of Finance
P = 1, r = 0.12, t = 10
a. Compounding semiannually means: m = 2, mt = 20
A = 1(1 + 0.12
2 )
20
= $3.21 .
b. Compounding quarterly means: m = 4, mt = 40

The compound interest formula gives us: 12. We have the following table:
A = 1(1 + 0.12
4 )
40
= $3.26 . Years Simple Compounded
Interest Monthly
1 $ 10,600 $ 10,616.78
c. Compounding daily means: m = 365, mt = 3650 2 $ 11,200 $ 11,271.60
The compound interest formula gives us: 3 $11,800 $ 11,966.81
4 $ 12,400 $ 12,704.89
A = 1(1 + 0.12
365 )
3650
= $3.32 . 5 $ 13,000 $ 13,488.50
The graph is shown below:

P = 10, 000, r = 0.14, t = 124 = 1

3 $14,000
Accumulated Value
$13,000
a. The simple interest formula gives us:
$12,000
(
A = 10, 000 1 + ( 0.14) ( 1
3 )) = $10, 466.67 . $11,000
b. Compounding monthly means: m = 12, mt =4 $10,000

0 1 2 3 4 5 6
Year
A = 10, 000 (1 + 0.14

12 ) = $10, 474.90 .
4
13. The information given in the problem is:

c. Compounding daily means: m = 365, mt = 365
A = 20, 000, P = 8000, m = 1, t = 10

3
A = 10, 000 (1 + 0.14

365 )
121.667 Substituting into the compound interest formula we get:
= $10, 477.63 .
20, 000 = 8000 (1 + 1r )
10
11. We have the following table:
Years Simple Compounded Solve the equation for r.

Interest Quarterly
= (1 + r )
20,000 10
1 $ 5500 $ 5519.06 8000
2 $ 6000 $ 6092.01
1 + r = ( 2.5) = 1.096
0.1
3 $ 6500 $ 6724.44
4 $ 7000 $ 7422.53 r = 0.096
5 $ 7500 $ 8193.08
Thus, investing $8000 at an interest rate of 9.6%
The graph is shown at the top of the next column. compounded annually will yield $20,000 after ten years.

= (1 + 4r )
6500 20
2300
A = 12, 000, P = 3500, m = 1, t = 6 1 + 4r = ( 6500

2300 )
1
20
= 1.0533
Substituting into the compound interest formula we get:
r
4 = 0.0533
r = 0.213
12, 000 = 3500 (1 + 1r )
6

compounded quarterly will yield $6500 after 5 years.
Solve the equation for r.
= (1 + r )
12,000 6
3500
A = 7500, P = 2500, m = 2, t = 6
1 + r = ( 12000
2500 ) = 1.228
1
6
r = 0.228 Substituting into the compound interest formula we get:
7500 = 2500 (1 + 2r )
12
compounded annually will yield $12,000 after six years.
15. The information given in the problem is: Solve the equation for r .
= (1 + 2r )
12
A = 5000, P = 1250, m = 4, t = 12 7500
2500
1 + 2r = ( 3) 12 = 1.0959
1
r
= 0.0959
5000 = 1250 (1 + )
2
r 48
4 r = 0.192
Solve the equation for r . Thus, investing $2500 at an interest rate of 19.2%
compounded semiannually will yield $7500 after 6 years.
= (1 + 4r )
5000 48
1250 18. The information given in the problem is:
1 + = ( 4)
1
r 48
= 1.029
4
A = 3000, P = 1500, m = 2, t = 8
r
4 = 0.0293
r = 0.117 Substituting into the compound interest formula we get:
3000 = 1500 (1 + 2r )
16
compounded quarterly will yield $5000 after 12 years.
16. The information given in the problem is: Solve the equation for r .
= (1 + 4r )
20
A = 6500, P = 2300, m = 4, t = 5 3000
1500
1 + 2r = ( 2) 16 = 1.0443
1
Substituting into the compound interest formula we get the
equation: r
2 = 0.0443
r = 0.0885
6500 = 2300 (1 + 4r )
20

We solve for r at the top of the next column. compounded semiannually will yield $7500 after 8 years.
6000 = 1000 (1 + 0.12

4 )
19. The information given in the problem is: n
A = 3500, P = 1200, r = 0.08, m = 2

Solve the equation for n .
6 = (1 + 0.03)
n
3500 = 1200 (1 + 0.08

2 )
n
ln (1.03) = ln ( 6)
n
Solve the equation for n . n ln (1.03) = ln ( 6)
3500
= (1 + 0.04)
n
ln ( 6)
1200 n= = 60.62
ln (1.03)
ln (1.04) = ln ( 1200 )
n 3500
n ln (1.04) = ln ( 1200
3500
) Thus, it will take 61 compounding periods or 15.25 years to
achieve the conditions set forth in the problem.
ln ( 1200
3500
) 22. The information given in the problem is:
n= = 27.29
ln (1.04)
A = 30, 000, P = 4800, r = 0.15, m = 4
Thus, it will take 28 compounding periods or 14 years to
achieve the conditions set forth in the problem. Substituting into the compound interest formula we get:
30, 000 = 4800 (1 + 0.15

4 )
n
A = 5000, P = 2400, r = 0.06, m = 2

= (1 + 0.0375)
30000 n
4800
5000 = 2400 (1 + 0.06

2 ) ln (1.0375) = ln ( 6.25)
n n
n ln (1.0375) = ln ( 6.25)
ln ( 6.25)
= (1 + 0.03)
n
n= = 49.78
5000
ln (1.0375)
2400
ln (1.03) = ln ( 5000
2400 )
n
n ln (1.03) = ln ( 5000
2400 )
Thus, it will take 50 compounding periods or 12.5 years to
ln ( 5000
2400 )
n= = 24.83
ln (1.03)
A = 50, 000, P = 6000, r = 0.10, m = 1
Thus, it will take 25 compounding periods or 12.5 years to
50, 000 = 6000 (1 + 0.10

1 )
n
A = 6000, P = 1000, r = 0.12, m = 4 We solve for n at the top of the next page.

equation at the top of the next column.
= (1 + 0.10) 26. The information given in the problem is:

50,000 n
6000
ln (1.10) = ln
n
( 50,000
6000 ) A = 12, 000, r = 0.09, m = 1, t = 15
n ln (1.10) = ln ( 50,000
6000 ) Substituting into the compound interest formula we get:
( ) = 22.25 12, 000 = P (1 + 0.09

1 )
15
50,000
ln
n=
6000
ln (1.10)
Solve the equation for P.
Thus, it will take 23 compounding periods which is 23 years
12, 000 = P (1 + 0.09)
15
to achieve the conditions set forth in the problem.
12, 000
24. The information given in the problem is: P= = 3294.46
(1.09)15
A = 60, 000, P = 10, 000, r = 0.09, m = 1
Thus, a principal of $ 3294.46 must be invested to achieve
Substituting into the compound interest formula we get: the stated conditions set forth in the problem.
60, 000 = 10, 000 (1 + 0.09

1 )
n 27. The information given in the problem is:
A = 30, 000, r = 0.12, m = 4, t = 10

= (1 + 0.09)
60,000 n
10,000
30, 000 = P (1 + 0.12
4 )
40
ln (1.09) = ln ( 6)
n
n ln (1.09) = ln ( 6) Solve the equation for P .
ln ( 6) 30, 000 = P (1 + 0.03)

40
n= = 20.79
ln (1.09) 30, 000
P= = 9196.71
Thus, it will take 21 compounding periods which is 21 years (1.03) 40
to achieve the conditions set forth in the problem.
25. The information given in the problem is: the stated conditions set forth in the problem.
A = 5000, r = 0.06, m = 1, t = 10 28. The information given in the problem is:
Substituting into the compound interest formula we get: A = 35, 000, r = 0.06, m = 4, t = 12
5000 = P (1 + 0.06
1 )
10 Substituting into the compound interest formula we get:
35, 000 = P (1 + 0.06

4 )
48
Solve the equation for P .
P at the top of the next page.

5000 = P (1 + 0.06)
10 We solve the equation for
5000
P= = 2791.97
(1.06)10
the stated conditions set forth in the problem.
35, 000 = P (1 + 0.015) A = 5000 (1 + 0.07

2 )
48 20
= 9948.94
35, 000
P= = 17,127.66
(1.015) 48 The value of the investment will be $ 9948.94 ten years
from now.
Thus, a principal of $ 17,127.66 must be invested to achieve 32. The information given in the problem is:
P = 10, 000, r = 0.10, m = 4, t = 15
A = 3000, r = 0.075, m = 12, t = 10
A = 10, 000 (1 + 0.10
4 )
60
Substituting into the compound interest formula we get: = 43,997.90
3000 = P (1 + 0.075
12 )
120 The value of the investment will be $ 43,997.90 15 years
from now.
Solve the equation for P . 33. The information given in the problem is:
3000 = P (1 + 0.00625)
120 A = 20, 000, r = 0.08, m = 4, t = 12
3000
P= = 1420.41 Substituting into the compound interest formula we get:
(1.00625)120
20, 000 = P (1 + 0.08
4 )
48

Solving for P we get:
20, 000 = P (1 + 0.02)
48
A = 10, 000, r = 0.09, m = 12, t = 8 20, 000

P= = 7730.75
Substituting into the compound interest formula we get: (1.02) 48
10, 000 = P (1 + 0.09

12 )
96 Dr. Bishop will need to invest $ 7,730.75 now in order to
have saved $ 20,000 dollars in 12 years.
Solve the equation for P. 34. The information given in the problem is:
10, 000 = P (1 + 0.0075)

96 A = 6000, r = 0.075, m = 2, t = 3
10, 000
P= = 4880.62 Substituting into the compound interest formula we get:
(1.0075) 96
6000 = P (1 + 0.075
2 )
6

6000 = P (1 + 0.0375)
6
P = 5000, r = 0.07, m = 2, t = 10 6000

P= = 4810.86
Substituting into the compound interest formula we get the (1.0375) 6
Ramero will need to invest $ 4810.76 now in order to have
the estimated $6000 dollars in three years.
3P = P (1 + 0.08
4 )
35. The information given in the problem is: 4t
A = 20, 000, P = 8000, m = 2, t = 12

Solving for t we get:
= (1 + 0.02)
3P 4t
P
20, 000 = 8000 (1 + 2r )
24
ln(1.02) 4t = ln ( 3)
Solving for r we get: 4t ln (1.02) = ln ( 3)
20,000
= (1 + 2r )
24
ln ( 3)
8000 t= = 13.87 .
4 ln (1.02)
1 + 2r = ( 2.5) 24 = 1.0389
1
r
2 = 0.0389 It will take 14 years for the principal to triple in value.
r = 0.0778 38. The information given in the problem is:
The Tanners will need to invest at an interest rate of 7.78%
compounded semiannually to have enough money for their
P = 4000, r = 0.10, m = 1
child’s college education in 12 years.
To double the principle, we need
A = 2 P = 2 ( 4000) = 8000
A = 75, 000, P = 50, 000, m = 4, t = 3
8000 = 4000 (1 + 0.10
1 )
t
75, 000 = 50, 000 (1 + )

r 12
4
Solving for t we get:
Solving for r we get:
= (1 + 0.10)
8000 t
= (1 + )
r 12
75,000 4000
ln(1.10)t = ln ( 2)
50,000 4
1 + 4r = (1.5) = 1.0344
1
t ln (1.10) = ln ( 2)
12
r
4 = 0.0344
r = 0.1375 ln ( 2)
t= = 7.273 .
ln (1.10)
Nancy will need to invest at an interest rate of 13.75%
compounded quarterly to have the necessary funds three
years from now. Since interest is calculated at the end of the period, it will
take 8 years for the principal to double in value.
r = 0.08, m = 4
A = 8000, P = 5000, r = 0.075, m = 2
To triple the principle, we need A = 3P
8000 = 5000 (1 + 0.075
2 )
2t
We solve the equation for t at the top of the next page.

= (1 + 0.0375) 42. Since the reserve requirements are 15%, the bank will
8000 2t
5000 pay interest on the available reserves of
ln(1.0375) 2t = ln (1.6) ( $2000)( 0.85) = $1700 in your account.
2t ln (1.0375) = ln (1.6)
The interest earned on an account is given by the
formula I = Pi .
ln (1.6)
t= = 6.38 .
2 ln (1.0375) Since P = 1700 , and i = r
12 = 0.05
12 = .00417 , the interest
earned during the period is:
Since interest is calculated at the end of the period, it will
take 6.5 years compounding semiannually for the principal
to reach $8000.
I = 1700 ( 0.00417) = 7.089
40. The information given in the problem is: The interest was earned this month was $ 7.09.
A = 25, 000, P = 10, 000, r = 0.08, m = 4 43. Using the compounded interest formula:
C = 50 (1 + 0.04
1 ) = 50 (1.04) = 60.83
5 5
25, 000 = 10, 000 (1 + 0.08

4 )
4t
The cost of $ 50 worth of goods will be $ 60.83 five years
from now.
Solving for t we get: 44. Using the compounded interest formula:
= (1 + 0.02)
25 ,000 4t
C = 100 (1 + 0.06
1 ) = 100 (1.06) = 179.08
10 10
10 ,000
ln(1.02) 4t = ln ( 2.5)
4t ln (1.02) = ln ( 2.5)
The cost of $ 100 worth of goods will be $ 179.07 ten years
from now.
ln ( 2.5) 45. If the purchasing power decreases by 5% each year, then

t= = 11.57 .
4 ln (1.02) (
after n years, the purchasing power will be 0.95 . To )n
find out how long it will take for the purchasing power to be
Since interest is calculated at the end of the period, it will cut in half, we set:
take 11.5 years compounding quarterly for the principal to
reach $ 25,000. ( 0.95) n = 12
41. Since the reserve requirements are 15%, the bank will
pay interest on the available reserves of and solve for n .
( $1200)( 0.85) = $1020 in your account.

ln ( 0.95) = ln ( 12 )
n
The interest earned on an account is given by the n ln ( 0.95) = ln ( 12 )

formula I = Pi .
Since P = 1020 , and i = r

= 0.045
= .00375 , the ln ( 12 )
n= = 13.51
ln ( 0.95)
12 12
interest earned during the period is:
I = 1020 ( 0.00375) = 3.825 It will take about 13.5 years for the purchasing power of the
dollar to be cut in half.
The interest was earned this month was $ 3.83.
46. If the purchasing power decreases by 8% each year, then 50. If the rate of inflation is 5% per year, and a new home
after n years, the purchasing power will be 0.92 ( ) n
. To
costs $110,000 today. The cost of a new home ten years
from now will be:
find out how long it will take for the purchasing power to be
A = 110, 000 (1 + 0.05

1 )
reduced by three-fourths, we set: 10
= 179,178.41
( 0.92) n = 34 Thus, the median value of new home will be
$ 179,178.41 ten years from now.
and solve for n .
51. If each floor costs 20% more than the floor immediately
ln ( 0.92) = ln ( 34 ) ( )
n
below it, the second floor will cost 250, 000 1.2 , the
n ln ( 0.92) = ln ( 3
4 ) ( ) 2
third floor will cost 250, 000 1.2 , etc.
ln ( 34 ) a. Using the pattern described above for the fourth floor we

n= = 3.45 have:
ln ( 0.92)
250, 000 (1.2) = 432, 000
3
It will take about three years and five months for the
purchasing power of the dollar to be reduced to three-
fourths its original value. The fourth floor will cost $ 432,000.
47. If the rate of inflation is 5% per year, and they can live b. Using the pattern described above for the eighth floor we
comfortably now on $ 25,000, in order to maintain the same have:
standard of living ten years from now, they will need:
250, 000 (1.2) = 895, 795.20
7
A = 25, 000 (1 + 0.05

1 )
10
= 40, 722.37
The fourth floor will cost $ 895,795.20
Thus, they will need $ 40,722.37 ten years from now to
c. The total cost of the building will be the sum of the cost
have the same standard of living as they do today.
of the eight floors.
48. If the rate of inflation is 6% per year, and they can live
7
C = 250, 000∑ (1.2)
comfortably now on $ 45,000, in order to maintain the same i
standard of living eight years from now, they will need:
i =0
⎛ (1.2) 8 − 1⎞
A = 45, 000 (1 + 0.06 8
) = 71, 723.16 C = 250, 000 ⎜
1 ⎟
⎝ 1.2 − 1 ⎠
Thus, they will need $ 71,723.16 eight years from now to C = $4,124, 771.20
have the same standard of living as they do today.
49. If the rate of inflation is 5% per year, and a new car The entire cost of the building will be $4,124,771.20.
costs $20,000 today. The cost of a new car eight years from
now will be: 52. If r represents the rate of return compounded annually,
we have:
A = 20, 000 (1 + 0.05

1 ) = 29,549.11
8
24,500 = 18, 000 (1 + r )
5
Thus, the median value of a new car will be

We solve the equation for r at the top of the next page.
$ 29,549.11 eight years from now.
= (1 + r ) 7. Using the information given in the problem, the amount

24,500 5
18,000 that should be deposited per period to reach $100,000 is:
( )
1
1+ r = 24,500 5
= 1.0636
18,000
100, 000 (.025)
r = 0.0636 p= = $3914.71
(1 + .025) 20 − 1
The annual rate of return on her investment is 6.36%
compounded annually. 8. Using the information given in the problem, the amount
that should be deposited per period to reach $100,000 is:
Exercises Section 6.2 100, 000 (.01)

p= = $ 2874.81
(1 + .01)30 − 1
1. The future value of the ordinary annuity will be:
9. Using the information given in the problem, the amount
⎡ (1 + 0.025) − 1 ⎤ 30 that should be deposited per period to reach $100,000 is:
A = 500 ⎢ ⎥ = $ 21,951.35 .
⎢⎣ 0.025 ⎥⎦ 100, 000 (.02)
p= = $5365.01
(1 + .02)16 − 1
10. Using the information given in the problem, the amount
⎡ (1 + 0.04) 24 − 1 ⎤ that should be deposited per period to reach $100,000 is:
A = 1200 ⎢ ⎥ = $ 46,899.12 .
⎣⎢ 0.04 ⎦⎥ 100, 000 (.04)
p= = $3899.33
3. The future value of the ordinary annuity will be: (1 + .04)18 − 1
⎡ (1 + 0.01) 20 − 1 ⎤ 11. Using the information given in the problem, the amount
A = 700 ⎢ ⎥ = $15, 413.30 . that should be deposited per period to reach $100,000 is:
⎣⎢ 0.01 ⎦⎥
100, 000 (.03)
p= = $3274.74
(1 + .03) 22 − 1
⎡ (1 + 0.015) 40 − 1 ⎤
A = 3000 ⎢ ⎥ = $162,803.68 . 12. Using the information given in the problem, the amount
⎣⎢ 0.015 ⎦⎥
that should be deposited per period to reach $100,000 is:
100, 000 (.05)

5. The future value of the ordinary annuity will be: p= = $1956.43
(1 + .05) 26 − 1
⎡ (1 + 0.05) 20 − 1 ⎤
A = 8000 ⎢ ⎥ = $ 264,527.63 . 13. The information in the problem is:
⎣⎢ 0.05 ⎦⎥
p = 500, r = 0.08, m = 1, n = mt = 16
The future value of the annuity will be:
⎡ (1 + 0.03)12 − 1 ⎤
A = 10, 000 ⎢ ⎥ = $141,920.30 . ⎡ (1 + 0.08)16 − 1 ⎤
⎢⎣ 0.03 ⎥⎦ A = 500 ⎢ ⎥ = $15,162.14 .
⎢⎣ 0.08 ⎥⎦
The value of the account will be $15,162.14 on Nannette’s

daughter’s 16th birthday.
Section 6.2 Ordinary Annuities 393
14. The information in the problem is 17. The information in the problem is:
P = 10, 000, p = 1000, r = 0.06 p = 2000, r = 0.05, m = 1, n = mt = 25

m = 4, i = r
m = 0.14, n = mt = 32
Using the ordinary Annuity Formula we get:
⎡ (1 + 0.05) 25 − 1 ⎤
A = 2000 ⎢ ⎥ = $95, 454.20 .
S = 10, 000 (1 + 0.015) +
32
⎢⎣ 0.05 ⎥⎦
⎡ (1 + 0.015) 32 − 1 ⎤
1000 ⎢ ⎥= The value of Eduardo’s account will be $ 95,454.20 upon
⎢⎣ 0.015 ⎥⎦ his retirement.
18. The company matches Jeremy’s payment of $1000, so

S = 16,103.24 + 40, 688.29 the information in the problem is:
S = 56, 791.53 p = 2000, r = 0.08, m = 1, n = mt = 30
Timothy will have $ 56,791.53 in his account at the end of The future value of the annuity will be:
eight years.
⎡ (1 + 0.08) 30 − 1 ⎤
15. The information given in the problem is: A = 2000 ⎢ ⎥ = $ 226,566.42 .
⎢⎣ 0.08 ⎥⎦
A = 20, 000, r = 0.07, m = 4
i = mr = 0.175, n = mt = 64 When Jeremy retires in 30 years, the value of his retirement
account will be $226,566.42.
The amount deposited into the account each quarter is given
by: 19. Compute the value of each account.
20, 000 ( .074 )

a. The information for this account is:
p= = 171.96
(1 + .074 )64 − 1 p = 2000, r = 0.07, m = 1, n = mt = 20 .
Elena should deposit $ 171.96 at the end of each quarter for The future value of the annuity will be:
the next 16 years in order to have $20,000 accumulated for
her son’s college expenses. ⎡ (1 + 0.07) 20 − 1 ⎤
A = 2000 ⎢ ⎥ = $81,990.98
16. The information given in the problem is: ⎢⎣ 0.07 ⎥⎦
A = 40, 000, r = 0.08, m = 2 b. The information for this account is:

i = = 0.4, n = mt = 12
r
m
p = 1800, r = 0.065, m = 4, n = mt = 80 .
The amount deposited into the account each quarter is given
by:
20, 000 ( .082 ) ⎡ (1 + 0.065

4 ) −1
80
⎤
p= = 2662.09 A = 1800 ⎢ ⎥ = $ 291, 450.92
(1 + .082 )12 − 1 ⎢⎣ ⎥⎦
0.065
4
The freight-hauling firm will need to deposit a sum of $ The solution is stated at the top of the next page.
2662.09 into the sinking fund semiannually to reach their
goal of $ 40,000 in six years.
Obviously there is more money in the second account; ⎡ (1 + 0.06)15 − 1 ⎤

however, this account requires more savings to be put into A = 2000 ⎢ ⎥ = $ 46,551.94
⎣⎢ 0.06 ⎦⎥
the annuity. The annuity in part (a) requires the individual to
deposit $40,000 into the account and therefore earned
$41,990.98 over the 20 years. The annuity in part (b)
requires the individual to deposit 144,000 into the account The value of the retirement account will be $46,551.94 at
and therefore earned $ 147,450.92 over the 20 years. the end of 15 years.
Therefore the annuity in part (b) earned more money over 21. The information that applies to all four parts of the
the 20 years. problem is:
20. The information that applies to all four parts of the p = 500, r = 0.06, m = 4
problem is:
The only variable that will change is the number of periods
p = 2000, r = 0.06, m = 1 the account is active.
The only variable that will change is the number of periods ( )( )

a. For this situation, n = mt = 4 35 = 140 . The future
the account is active. value of the annuity is:
a. For this situation, n = mt = 40 . The future value of the

⎡ (1 + 0.06
4 )
140
− 1⎤
annuity is:
A = 500 ⎢ ⎥ = $ 234, 660.41
⎢⎣ ⎥⎦
0.06
4
⎡ (1 + 0.06) 40 − 1 ⎤
A = 2000 ⎢ ⎥ = $309,523.93
⎣⎢ ⎦⎥
0.06 The value of the retirement account will be $234,660.41 at
the end of 35 years.
The value of the retirement account will be $ 3,493.199.78
at the end of 40 years. ( )( )
b. For this situation, n = mt = 4 30 = 120 . The future
value of the annuity is:
b. For this situation, n = mt = 30 . The future value of the
annuity is: ⎡ (1 + 0.06
4 )
120
− 1⎤
A = 500 ⎢ ⎥ = $165, 644.10
⎢⎣ ⎥⎦
0.06
⎡ (1 + 0.06) 30 − 1 ⎤ 4
A = 2000 ⎢ ⎥ = $158,116.37
⎣⎢ 0.06 ⎦⎥ The value of the retirement account will be $165,644.10 at
The value of the retirement account will be $158,116.37 at
the end of 30 years. ( )( )
c. For this situation, n = mt = 4 25 = 100 . The future
value of the annuity is:
c. For this situation, n = mt = 25 . The future value of the
annuity is:
⎡ (1 + 0.06
4 )
100
− 1⎤
A = 500 ⎢ ⎥ = $114, 401.52
⎡ (1 + 0.06) 25 − 1 ⎤ ⎢⎣
0.06
⎥⎦
A = 2000 ⎢ ⎥ = $109, 729.02
4
⎢⎣ 0.06 ⎥⎦
( )( )
d. For this situation, n = mt = 4 20 = 80 . The future
d. For this situation, n = mt = 15 . The future value of the value of the annuity is stated at the top of the next page.
annuity is stated at the top of the next column.
Section 6.2 Ordinary Annuities 395
⎡ (1 + 0.06
4 ) −1
80
⎤ ⎡1 − (1 + 0.09
12 )
−60
⎤
A = 500 ⎢ ⎥ = $ 76,355.43 P = 800 ⎢ ⎥ = $38,538.70
⎢⎣ ⎥⎦ ⎢⎣ ⎥⎦
0.06 0.09
4 12
The value of the retirement account will be $76,355.43 at The Brewster’s will need to have saved $38,538.70 once
the end of 20 years. their daughter starts college in order to withdraw $800 each
month for the next 5 years.
22. The information given that is common to both parts of
the problem is: 25. We want to determine the present value of an annuity
paying $800 a month with r = 0.06, m = 12, n = mt = 8 .
A = 300, 000; n = t = 30 Using the present value formula:
a. The interest rate is 6%, and the necessary payments are: ⎡1 − (1 + 0.06
12 )
−8
⎤
P = 800 ⎢ ⎥ = $6258.37
p=
( 300, 000)( 0.06) = 3794.67 ⎢⎣
0.06
12 ⎥⎦
(1 + 0.06) 30 − 1
The Meek brothers will need to have saved $6258.37 in
order to be able to withdraw $800 each month for the next 8
You will need to invest $3794.67 annually to have $300,000
months.
at the end of 30 years.
26. We want to determine the present value of an annuity
b. The information given that is common to both parts of
the problem is: paying $5000 a year with r = 0.08, m = 1, n = mt = 7 .
Using the present value formula:
A = 300, 000; n = t = 30
⎡1 − (1 + 0.08
1 )
−7
⎤
a. The interest rate is 8%, and the necessary payments are: P = 5000 ⎢ ⎥ = $26, 031.85
⎢⎣ ⎥⎦
0.08
1
p=
( 300, 000)( 0.08) = 2648.23
(1 + 0.08) 30 − 1 The small business will have to have set aside $26,031.85 to
guarantee annual franchising fee payments of $5000 for the
next seven years.
You will need to invest $2648.23 annually to have $300,000
at the end of 30 years. 27. We want to determine the present value of an annuity
paying $5000 a year with r = 0.10, m = 1, n = mt = 10 .
paying $500 a month with Using the present value formula:
r = 0.07, m = 12, n = mt = 240 .
⎡1 − (1 + 0.10
1 )
−10
⎤
Using the present value formula: P = 5000 ⎢ ⎥ = $30, 722.84
⎣⎢ ⎦⎥
0.10
1
⎡1 − (1 + 0.07
12 )
−240
⎤
P = 500 ⎢ ⎥ = $64, 491.25 The present value of your lottery is $30,722.84.
⎢⎣ ⎥⎦
0.07
12

Katy will need to have saved $64,491.25 in order to paying $150 per month with
withdraw $500 each month for the next 20 years. r = 0.08, m = 12, n = mt = 36 .
24. We want to determine the present value of an annuity The present value formula shown at the top of the next page
paying $800 a month with r = 0.09, m = 12, n = mt = 60 . gives us the result.
The present value formula shown at the top of the next

column gives us the result.
⎡1 − (1 + 0.08
12 )
−36
⎤ Next, Bronwyn deposits the $4683.86 into a 90 day
P = 150 ⎢ ⎥ = $4786.77 certificate of deposit paying 6.8% annually. Thus,
⎢⎣
0.08
12 ⎥⎦ r = 0.068, m = 365, n = mt = 90 . Once again using the
compound interest formula we see the final amount in the
The fair price of the loan is $ 4,786.77. account is:
A = 4683.86 (1 + 0.068
365 )
90
29. We want to determine the present value of an annuity = 4763.05 .
paying $65 per month with
r = 0.09, m = 12, n = mt = 36 . When the certificate of deposit matures, Bronwyn will have
accumulated $4763.05.
32. The information needed to compute the value of the
⎡1 − (1 + )
0.09 −36 ⎤ annuity is:
P = 65 ⎢ 12
⎥ = $2044.04
⎢⎣
0.09
12 ⎥⎦ p = 200, r = 0.0625, m = 12, n = mt = 24 .
The company should expect to receive $2044.04 for its loan. Computing the future value of this annuity results in the
following:
paying $1500 per quarter with ⎡ (1 + 0.0625
12 )
24
− 1⎤
r = 0.12, m = 4, n = mt = 16 . A = 200 ⎢ ⎥ = $5098.79
⎢⎣ ⎥⎦
0.0625
24

Now, Erin deposits the $5098.79 into a 90 day certificate of
⎡1 − (1 + )
0.12 −16 ⎤ deposit paying 7.5% annually. Thus,
P = 1500 ⎢ ⎥ = $18,841.65 r = 0.075, m = 365, n = mt = ( 365) ( 365 ) = 90 .
4 90
⎢⎣ ⎥⎦
0.12
4
Using the compound interest formula we see amount in the

The company should expect to receive $18,841.65 for its account is:
loan.
A = 5098.79 (1 + 0.075
365 )
90
31. The information needed to compute the value of the
= 5193.95 .
annuity is:
Next, Erin deposits the $5193.95 into a certificate of deposit
p = 100, r = 0.0525, m = 12, n = mt = 36 . paying 8% interest compounded quarterly for three years or
12 periods. Using the compounded interest formula for a
single payment problem results in the following:
Computing the future value of the annuity we get:
A = 5193.95 (1 + 0.08
4 ) = 6587.18 .
12
⎡ (1 + 0.0525
12 ) − 1
36
⎤
A = 100 ⎢ ⎥ = $3889.80
⎢⎣ ⎥⎦
0.0525
12 When the certificate of deposit matures, Erin will have
accumulated $6587.18.
Now, Bronwyn deposits the $3889.80 into a certificate of
deposit paying 7.5% interest compounded quarterly for 2.5
years or 10 periods. Using the compounded interest
formula for a single payment problem results in the
following:
A = 3889.80 (1 + 0.075
4 ) = 4683.86 .
10
Section 6.3 Consumer Loans and the APR 397
Exercises Section 6.3 7. The information in the problem is:

r = 0.09, m = 365 . The effective rate of interest formula
1. The information in the problem is: tells us:
APR = (1 + 0.09
365 )
365
tells us: − 1 = 0.0942
APR = (1 + 0.065
4 ) − 1 = 0.0666
4
The annual percentage rate is 9.42%.
The annual percentage rate is 6.66%. 8. The information in the problem is:
2. The information in the problem is: tells us:
APR = (1 + 0.07
12 ) − 1 = 0.0723
12
tells us:
APR = (1 + 0.08
12 ) − 1 = 0.0830
12
The annual percentage rate is 8.30%. 9. Compute the effective rates of interest for each of the
three accounts.
3. The information in the problem is:
r = 0.04, m = 2 . The effective rate of interest formula tells a. r = 0.05, m = 2 . The effective rate of interest formula
us: tells us:
APR = (1 + 0.04
2 ) − 1 = 0.0404
APR = (1 + 0.05
2 ) − 1 = 0.0506
2 2
The annual percentage rate is 4.04%. The annual percentage rate is 5.06%
4. The information in the problem is: b. r = 0.048, m = 4 . The effective rate of interest formula
r = 0.12, m = 365 . The effective rate of interest formula tells us:
tells us:
APR = (1 + 0.048
4 ) − 1 = 0.0489
4
APR = (1 + 0.12
365 )
365
− 1 = 0.1275
c. r = 0.046, m = 12 . The effective rate of interest
5. The information in the problem is: formula tells us:
APR = (1 + 0.046
12 ) − 1 = 0.0470
12
tells us:
APR = (1 + 0.16
12 ) − 1 = 0.1723
12
The annual percentage rate is 4.70%
The annual percentage rate is 17.23%. Plan (a) will offer the highest interest per year, followed by
plan (b), and then plan (c).
r = 0.10, m = 4 . The effective rate of interest formula tells
us:
APR = (1 + 0.10
4 ) − 1 = 0.1038
4

10. Compute the effective rates of interest for each of the The annual percentage rate is 6.80%
three accounts.
Plan (c) will offer the highest interest per year, followed by
a. r = 0.105, m = 4 . The effective rate of interest formula plan (b), and then plan (a).
tells us:
12. Compute the effective rates of interest for each of the
three accounts.
APR = (1 + 0.105
4 ) − 1 = 0.1092
4
a. r = 0.12, m = 1 . The effective rate of interest formula

The annual percentage rate is 10.92% tells us:
b. r = 0.11, m = 365 . The effective rate of interest APR = (1 + 0.12

1 ) − 1 = 0.12
1
formula tells us:

APR = (1 + 0.11
365 )
365
− 1 = 0.1163
b. r = 0.118, m = 4 . The effective rate of interest formula
The annual percentage rate is 11.63%. tells us:
c. r = 0.106, m = 2 . The effective rate of interest formula APR = (1 + 0.118

4 ) − 1 = 0.1233
4
tells us:
APR = (1 + 0.106
2 ) − 1 = 0.1088
2
c. r = 0.119, m = 2 . The effective rate of interest formula

APR = (1 + 0.119
2 ) − 1 = 0.1225
Plan (b) will offer the highest interest per year, followed by 2
plan (a), and then plan (c).
11. Compute the effective rates of interest for each of the The annual percentage rate is 12.25%
three accounts.
Plan (b) will offer the highest interest per year, followed by
a. r = 0.063, m = 12 . The effective rate of interest plan (c), and then plan (a).
formula tells us:
three accounts.
APR = (1 + 0.063
12 ) − 1 = 0.0649
12

b. r = 0.065, m = 4 . The effective rate of interest formula APR = (1 + 0.08

2 ) − 1 = 0.0816
2
tells us:
APR = (1 + 0.065
4 ) − 1 = 0.0666
4
b. r = 0.082, m = 1 . The effective rate of interest formula

The annual percentage rate is 6.66%. tells us:
c. r = 0.068, m = 1 . The effective rate of interest formula APR = (1 + 0.082

1 ) − 1 = 0.082
1
tells us:
APR = (1 + 0.068
1 ) − 1 = 0.068
1
The solution is continued at the top of the next column.

c. r = 0.06, m = 12 . The effective rate of interest formula APR = (1 + 0.008) − 1 = 0.1003 .

12
tells us:
The annual percentage rate the credit card company charges
APR = (1 + 0.06
12 ) − 1 = 0.0617
12
is 10.03%.
17. The number of monthly payments in six years is

n = mt = (12)( 6) = 72 . Monthly interest is i = 0.03 ,
Plan (b) will offer the highest interest per year, followed by and P = 20, 000 . The amount of the payments needed to
plan (a), and then plan (c).
retire the loan given is:
three accounts.
p=
( 0.03)( 20, 000) = 681.08 .
1 − (1 + 0.03)
−72

tells us:
The monthly payments on the loan will be $681.08.
APR = (1 + 0.03
4 ) − 1 = 0.0303
4
18. The number of quarterly payments in ten years is
n = mt = ( 4)(10) = 40 . Quarterly interest is i = 0.04 ,
The annual percentage rate is 3.03% and P = 18, 000 . The amount of the payments needed to
b. r = 0.025, m = 365 . The effective rate of interest
formula tells us:
p=
( 0.04)(18, 000) = 909.42 .
1 − (1 + 0.04)
−40
APR = (1 + 0.025
365 )
365
− 1 = 0.0253
The annual percentage rate is 2.53%. The quarterly payments on the loan will be $909.42.
19. The number of monthly payments in 20 years is

c. r = 0.031, m = 2 . The effective rate of interest formula
tells us:
n = mt = (12)( 20) = 240 . Monthly interest is i = 0.02 ,
and P = 40, 000 The amount of the payments needed to
APR = (1 + 0.031
2 ) − 1 = 0.0312
2
The annual percentage rate is 3.12% p=

( 0.02)( 40, 000) = 806.96 .
1 − (1 + 0.02)
−240
Plan (c) will offer the highest interest per year, followed by
plan (a), and then plan (b).
15. The problem gives the period interest rate i = 0.01 .
20. The number of semiannual payments in 25 years is
The number of periods in one year will be m = 12 . The
effective rate of interest formula can now be applied.
n = mt = ( 2)( 25) = 50 . Annual interest is r = 0.08 ,
and m = 2 , so i = 0.08
2 = 0.04 . The amount borrowed is
APR = (1 + 0.01) − 1 = 0.1268 .
12
P = 30, 000 . The amount of the payments needed to
The annual percentage rate the credit card company charges
is 12.68%.
p=
( 0.082 ) ( 30, 000) = 1396.51 .
1 − (1 + 0.08 2 )
−50
16. The problem gives the period interest rate i = 0.008 .
The number of periods in one year will be m = 12 . The
effective rate of interest formula can now be applied at the The semiannual payments on the loan will be $1396.51.
top of the next column.
21. The number of monthly payments is given to be The interest that will be accumulated over 35 days is given
n = 60 . Annual interest is r = 0.119 , and m = 12 , so by the simple interest formula I = Prt . Plugging the
monthly interest is i = 0.119
12 .
information into this formula we get:
The amount borrowed is P = 12, 000 . The amount of the
I = 9643.68 ( 0.095) ( 365
35
) = 87.85 .
payments needed to retire the loan given is:
( 0.119
p = 12
) (12, 000) = 266.33 . Thus, $87.85 of you next payment will go towards the
interest.
1 − (1 + 0.119
12 )
−60
26. The information in the problem gives us:

P = 56, 743.54, r = 0.123, n = 365 28
.
22. The number of monthly payments is given to be The interest that will be accumulated over 28 days is given
n = 36 . The monthly interest is i = 0.000833 . The by the simple interest formula I = Prt . Plugging the
amount borrowed is P = 15, 000 . The amount of the information into this formula we get:
I = 56, 743.54 ( 0.123) ( 365 ) = 535.41 .

payments needed to retire the loan given is: 28
p=
( 0.000833)(15, 000) = 423.12 .
1 − (1 + 0.000833)
−36 Thus, $535.41 of you next payment will go towards the
interest.
The monthly payments on the loan will be $423.12. 27. The information given in the problem is
23. The number of quarterly payments in 12 years is P = 12,500, r = 0.098, m = 12, n = 48 . The
n = mt = ( 4)(12) = 48 . The annual interest is approximate size of the monthly payment is:
r = 0.10 , and m = 4 , so the quarterly interest is i = 0.10
The amount borrowed is P = 22, 000 . The amount of the
4 .
p=
( 0.098
12 ) (12,500)
= 315.83
1 − (1 + 0.098 )
−48
payments needed to retire the loan given is: 12
p=
( 0.104 ) ( 22, 000) = 792.13 . The payment each month will be $315.83.
1 − (1 + 0.10 4 )
−48
28. The information given in the problem is
The quarterly payments on the loan will be $792.13 P = 50, 000, r = 0.12, m = 1, n = 10 .
24. Te number of annual payments is given to be m = 10 . The approximate size of the annual payment is:
The annual interest is r = i = 0.093 . The amount
borrowed is P = 80, 000 . The amount of the payments
p=
( 0.121 ) ( 50, 000) = 8849.21
1 − (1 + 0.12 1 )
needed to retire the loan given is: −10
p=
( 0.093)( 80, 000) = 12, 630.70 . The payment each year will be $8849.21.
1 − (1 + 0.093)
−10
29. The information given in the problem is

The annual payments on the loan will be $12,630.70.
P = 800, r = 0.079, m = 12, n = 48 .
25. The information in the problem gives us:
The approximate size of the monthly payment is stated at
P = 9643.68, r = 0.095, n = 35
365 . the top of the next page.
p=
( 0.079
12 ) ( 800)
= 19.49
The monthly payments on the loan are:
1 − (1 + 0.079 ) −48
12 (
p = 12
0.085
) (8280) = 147.21 .
1 − (1 + 0.085
12 )
−72
The payment each month will be $19.49.
30. The information given in the problem is: George will pay $147.21 each month to pay off the loan.
P = 1500, r = 0.08, m = 12, n = 60 . b. To determine the unpaid balance after 24 timely

payments have been made, first observe that 48 payments
The approximate size of the monthly payment is: have yet to be paid. The unpaid balance will be the present
value of an annuity whose payments are $147.21 earning
( 0.08
12 ) (1500)
8.5% interest compounded monthly for 48 months. Thus,
the unpaid balance on the loan is:
p= = 30.41 ,
1 − (1 + 0.08 )
−60
⎡1 − (1 + 0.085
12 )
⎤
12 −48
A = 147.21 ⎢ ⎥ = 5972.42
The payment each month will be $30.41.
⎢⎣ ( 0.085
12 ) ⎥⎦
The unpaid balance on the boat after two years is $5972.42.
P = 20, 000, r = 0.11, m = 1, n = 8 .
(Notice, if you actually computed the monthly compound
interest rate from the A.P.R. formula, you would see that
The approximate size of the annual payment is:
r = 0.0819 compounded monthly, this gives a periodic
p=
( 0.111 ) ( 20, 000) = 3886.41 payment of $145.94, the present value of an annuity whose
payments are $145.94 per month compounded monthly at
1 − (1 + 0.11 1 )
−8
8.19% is $5956.20. The error from using the A.P.R. is not
substantial enough to worry about.)
The payment each year will be $3886.41. 34.
a. Since Pat and Maxine finance 80% of the value of the lot,
P = (.80) 28,500 = 22,800 . To determine the
32. Since Jack only finances 80% of the purchase,
P = ( 0.80)( 8500) = 6800 , therefore the information
semiannual payments, we have:
given in the problem is:
r = 0.09, m = 2, n = mt = 16 .
P = 6800, r = 0.09, m = 12, n = 60 .
The semiannual payments on the loan are:
The approximate size of the monthly payment is:
( 0.09
) ( 6800) (
p= 2
0.09
) ( 22,800) = 2029.55 .
p= = 141.16 1 − (1 + 0.092 )
12 −16
1 − (1 + 0.09
12 )
−60
Pat and Maxine will pay $2029.55 each month to pay off
The payment each month will be $141.16. the loan in eight years.
33. b. To determine the unpaid balance after 12 timely
a. Since George finances 90% of the value of the boat payments have been made, first observe that 4 payments
P = (.90) 9200 = 8280 . To determine the monthly have yet to be paid. The unpaid balance will be the present
payments, note that the simple interest rate can be thought value of an annuity whose payments are $2029.55 earning
of as the A.P.R. therefore, we have: 9% interest compounded semiannually for 2 years. Thus,
the unpaid balance on the loan is stated at the top of the next
page.
r = 0.085, m = 12, n = 72 .
⎡1 − (1 + 0.092 )
−4
⎤ b. To find out the total amount paid to the finance company,
A = 2029.55 ⎢ ⎥ = 7281.06 multiply the amount of each payment by the number
⎢⎣ ( 0.092 ) ⎥⎦ ( )
payments: 240 1090.59 = 261, 741.60 .
The unpaid balance on the lot after six years is $7281.06 Thus, $261,741.60 will be paid to the finance company over
20 years.
35.
a. Since Diane financed 70% of the value of the farm, 37.
P = (.70) 95, 000 = 66,500 . To determine the quarterly a. Calculating the number of periods we have
n = mt = 12i25 = 300 . Thus, the monthly payments are
payments, we have: given by:
r = 0.10, m = 4, n = mt = 40 .
p=
( 0.095
12 ) (117, 000)
= 1022.23
1 − (1 + 0.095 ) −300
The quarterly payments on the loan are: 12
(
p= 4
0.10
) ( 66,500) = 2649.11. The payments on the loan are $1022.23 each month.
1 − (1 + 0.104 )
−40
b. To find out the total amount paid to the finance company,
multiply the amount of each payment by the number
Diane will pay $2649.11 each quarter to pay off the loan in
ten years.
( )
payments: 300 1022.23 = 306, 669 .
b. To determine the unpaid balance after 20 timely Thus, $306,669 will be paid to the finance company over 25
payments have been made, first observe that 20 payments years.
have yet to be paid. The unpaid balance will be the present
value of an annuity whose payments are $2649.11 earning 38.
10% interest compounded quarterly for 5 years. Thus, the a. Calculating the number of periods we have
unpaid balance on the loan is: n = mt = 12i30 = 360 . Thus, the monthly payments are
given by:
⎡1 − (1 + 0.10 4 )
−20
⎤
A = 2649.11 ⎢ ⎥ = 41, 297.41 ( 0.095
) (117, 000) = 983.80
⎢⎣ ( 0.104 ) ⎥⎦ p = 12
1 − (1 + 0.095
12 )
−360
Diane’s unpaid balance on the farm after six years is

The payments on the loan are $983.80 each month.
$41,297.41.
In problems 36–42 the information for each problem is:
P = .9 (130, 000) = 117, 000 , r = 0.095 , m = 12 . ( )

payments: 360 983.80 = 354,168 .
Thus, $354,168 will be paid to the finance company over 30

Only the time period is changing in each problem.
years.
36.
39.
a. Calculating the number of periods we have
n = mt = 12i20 = 240 . Thus, the monthly payments are n = mt = 12i35 = 420 . Thus, the monthly payments are
given by:
given by:
( 0.095
p = 12
) (117, 000) = 1090.59 ( 0.095
12 ) (117, 000)
1 − (1 + 0.095 p= = 961.29
12 )
−240
1 − (1 + 0.095 ) −420
12


multiply the amount of each payment by the number p=
( 0.095
12 ) (117, 000)
= 934.49
1 − (1 + 0.095 ) −600
payments: 12
420 ( 961.29) = 403, 741.80 .
Thus, $403,741.80 will be paid to the finance company over multiply the amount of each payment by the number
35 years. ( )
payments: 600 934.49 = 560, 694 .
40.
Thus, $560,694 will be paid to the finance company over 50
years.
given by:
( 0.095
p = 12
) (117, 000) = 947.77
1 − (1 + 0.095
12 )
−480

( )
payments: 480 947.77 = 454,929.60 .
Thus, $454,929.60 will be paid to the finance company over

40 years.
41.
given by:
p=
( 0.095
12 ) (117, 000)
= 939.54
1 − (1 + 0.095 )
−540
12

payments: 540 ( 939.54) = 507, 351.60 .
Thus, $507,351.60 will be paid to the finance company over

45 years.
42.
given by the equation at the top of the next column.
For problems 43 – 49, the following information will remain the same.
P = $125, 000, m = 12, n = 180
43. We must first calculate the payment. Using the information given in the problem and an interest rate of r = 0.0925 ,
the payment will be:
p=
( 0.0925
12 ) (125, 000)
= 1286.49 .
1 − (1 + 0.0925
12 )
−180
Using an excel worksheet, the amortization table for the first 12 periods can be seen below:
Payment Applied to
Number Amount Interest Principal Unpaid Balance
Principal $125,000.00
1 $ 1,286.49 $ 963.54 $ 322.95 $ 124,677.05 r= 0.0925
2 $ 1,286.49 $ 961.05 $ 325.44 $ 124,351.61 m= 12
3 $ 1,286.49 $ 958.54 $ 327.95 $ 124,023.67 n= 180
4 $ 1,286.49 $ 956.02 $ 330.47 $ 123,693.19 I= 0.007708
5 $ 1,286.49 $ 953.47 $ 333.02 $ 123,360.17 Pmt 1286.49
6 $ 1,286.49 $ 950.90 $ 335.59 $ 123,024.58
7 $ 1,286.49 $ 948.31 $ 338.18 $ 122,686.40
8 $ 1,286.49 $ 945.71 $ 340.78 $ 122,345.62
9 $ 1,286.49 $ 943.08 $ 343.41 $ 122,002.21
10 $ 1,286.49 $ 940.43 $ 346.06 $ 121,656.16
11 $ 1,286.49 $ 937.77 $ 348.72 $ 121,307.43
12 $ 1,286.49 $ 935.08 $ 351.41 $ 120,956.02
p=
( 0.0733
12 ) (125, 000)
= 1146.72 .
1 − (1 + 0.0733 )
−180
12
Using an excel worksheet, the amortization table for the first 12 periods can be seen on the next page.
Payment Applied to
1 $ 1,146.72 $ 763.54 $ 383.18 $ 124,616.82 r= 0.0733
2 $ 1,146.72 $ 761.20 $ 385.52 $ 124,231.30 m= 12
3 $ 1,146.72 $ 758.85 $ 387.88 $ 123,843.42 n= 180
4 $ 1,146.72 $ 756.48 $ 390.25 $ 123,453.17 I= 0.006108
5 $ 1,146.72 $ 754.09 $ 392.63 $ 123,060.54 Pmt 1146.723
6 $ 1,146.72 $ 751.69 $ 395.03 $ 122,665.52
7 $ 1,146.72 $ 749.28 $ 397.44 $ 122,268.08
8 $ 1,146.72 $ 746.85 $ 399.87 $ 121,868.21
9 $ 1,146.72 $ 744.41 $ 402.31 $ 121,465.90
10 $ 1,146.72 $ 741.95 $ 404.77 $ 121,061.13
11 $ 1,146.72 $ 739.48 $ 407.24 $ 120,653.89
12 $ 1,146.72 $ 736.99 $ 409.73 $ 120,244.16
( 0.0795
p = 12
) (125, 000) = 1190.96 .
1 − (1 + 0.0795
12 )
−180
Payment Applied to
1 $ 1,190.96 $ 828.13 $ 362.83 $ 124,637.17 r= 0.0795
2 $ 1,190.96 $ 825.72 $ 365.24 $ 124,271.93 m= 12
3 $ 1,190.96 $ 823.30 $ 367.66 $ 123,904.27 n= 180
4 $ 1,190.96 $ 820.87 $ 370.09 $ 123,534.17 I= 0.006625
5 $ 1,190.96 $ 818.41 $ 372.55 $ 123,161.63 Pmt 1190.96
6 $ 1,190.96 $ 815.95 $ 375.01 $ 122,786.61
7 $ 1,190.96 $ 813.46 $ 377.50 $ 122,409.12
8 $ 1,190.96 $ 810.96 $ 380.00 $ 122,029.12
9 $ 1,190.96 $ 808.44 $ 382.52 $ 121,646.60
10 $ 1,190.96 $ 805.91 $ 385.05 $ 121,261.55
11 $ 1,190.96 $ 803.36 $ 387.60 $ 120,873.95
12 $ 1,190.96 $ 800.79 $ 390.17 $ 120,483.78
p=
( 0.0760
12 ) (125, 000)
= 1165.88 .
1 − (1 + 0.0760 )
−180
12
Using an excel worksheet, the amortization table for the first 12 periods can be seen on the next page.
Payment Applied to
1 $ 1,165.88 $ 791.67 $ 374.21 $ 124,625.79 r= 0.076
2 $ 1,165.88 $ 789.30 $ 376.58 $ 124,249.20 m= 12
3 $ 1,165.88 $ 786.91 $ 378.97 $ 123,870.23 n= 180
4 $ 1,165.88 $ 784.51 $ 381.37 $ 123,488.87 I= 0.006333
5 $ 1,165.88 $ 782.10 $ 383.78 $ 123,105.08 Pmt 1165.88
6 $ 1,165.88 $ 779.67 $ 386.21 $ 122,718.87
7 $ 1,165.88 $ 777.22 $ 388.66 $ 122,330.21
8 $ 1,165.88 $ 774.76 $ 391.12 $ 121,939.08
9 $ 1,165.88 $ 772.28 $ 393.60 $ 121,545.49
10 $ 1,165.88 $ 769.79 $ 396.09 $ 121,149.39
11 $ 1,165.88 $ 767.28 $ 398.60 $ 120,750.79
12 $ 1,165.88 $ 764.76 $ 401.13 $ 120,349.67
p=
( 0.0820
12 ) (125, 000)
= 1209.04 .
1 − (1 + 0.0820
12 )
−180
Payment Applied to
1 $ 1,209.04 $ 854.17 $ 354.88 $ 124,645.12 r= 0.082
2 $ 1,209.04 $ 851.74 $ 357.30 $ 124,287.82 m= 12
3 $ 1,209.04 $ 849.30 $ 359.74 $ 123,928.08 n= 180
4 $ 1,209.04 $ 846.84 $ 362.20 $ 123,565.88 I= 0.006833
5 $ 1,209.04 $ 844.37 $ 364.68 $ 123,201.21 Pmt 1209.042
6 $ 1,209.04 $ 841.87 $ 367.17 $ 122,834.04
7 $ 1,209.04 $ 839.37 $ 369.68 $ 122,464.36
8 $ 1,209.04 $ 836.84 $ 372.20 $ 122,092.16
9 $ 1,209.04 $ 834.30 $ 374.75 $ 121,717.41
10 $ 1,209.04 $ 831.74 $ 377.31 $ 121,340.11
11 $ 1,209.04 $ 829.16 $ 379.88 $ 120,960.22
12 $ 1,209.04 $ 826.56 $ 382.48 $ 120,577.74
p=
( 0.0697
12 ) (125, 000)
= 1121.44 .
1 − (1 + 0.0697 ) −180
12
Payment Applied to
1 $ 1,121.44 $ 726.04 $ 395.40 $ 124,604.60 r= 0.0697
2 $ 1,121.44 $ 723.75 $ 397.69 $ 124,206.91 m= 12
3 $ 1,121.44 $ 721.44 $ 400.00 $ 123,806.90 n= 180
4 $ 1,121.44 $ 719.11 $ 402.33 $ 123,404.57 I= 0.005808
5 $ 1,121.44 $ 716.77 $ 404.66 $ 122,999.91 Pmt 1121.44
6 $ 1,121.44 $ 714.42 $ 407.02 $ 122,592.89
7 $ 1,121.44 $ 712.06 $ 409.38 $ 122,183.51
8 $ 1,121.44 $ 709.68 $ 411.76 $ 121,771.76
9 $ 1,121.44 $ 707.29 $ 414.15 $ 121,357.61
10 $ 1,121.44 $ 704.89 $ 416.55 $ 120,941.05
11 $ 1,121.44 $ 702.47 $ 418.97 $ 120,522.08
12 $ 1,121.44 $ 700.03 $ 421.41 $ 120,100.67
( 0.0475
p = 12
) (125, 000) = 972.29 .
1 − (1 + 0.0475
12 )
−180
Payment Applied to
1 $ 972.29 $ 494.79 $ 477.50 $ 124,522.50 r= 0.0475
2 $ 972.29 $ 492.90 $ 479.39 $ 124,043.11 m= 12
3 $ 972.29 $ 491.00 $ 481.29 $ 123,561.83 n= 180
4 $ 972.29 $ 489.10 $ 483.19 $ 123,078.64 I= 0.003958
5 $ 972.29 $ 487.19 $ 485.10 $ 122,593.53 Pmt 972.2899
6 $ 972.29 $ 485.27 $ 487.02 $ 122,106.51
7 $ 972.29 $ 483.34 $ 488.95 $ 121,617.56
8 $ 972.29 $ 481.40 $ 490.89 $ 121,126.67
9 $ 972.29 $ 479.46 $ 492.83 $ 120,633.84
10 $ 972.29 $ 477.51 $ 494.78 $ 120,139.06
11 $ 972.29 $ 475.55 $ 496.74 $ 119,642.32
12 $ 972.29 $ 473.58 $ 498.71 $ 119,143.61
Chapter 6 Summary Exercises = (1.02)

3000 n
1500
ln (1.02) = ln ( 2)
n
1. Using the simple interest formula with

P = 2000, r = 0.07, t = 3 implies: n ln (1.02) = ln ( 2)
A = 2000 (1 + 0.07 ( 3) ) = 2420 ln ( 2)

n= ≈ 35
ln (1.02)
The accumulated value after three years earning simple
interest is $2420.00. It will take 35 quarters, or eight years nine months for
$1500 to accumulate to $3000.
2. Using the compound interest formula with
P = 2000, r = 0.07, t = 3, m = 1 implies: 6. The information in the problem is:
A = 3000, P = 1500, r = 0.08, m = 365 .

A = 2000 (1 + 0.07
1 ) = 2450.09
3
Using the compound interest formula we have:

The accumulated value after three years earning annually
3000 = 1500 (1 + 0.08
365 )
compounded interest is $2450.09. n

P = 2000, r = 0.07, t = 3, m = 4 implies: To find the number of periods needed, solve for n .
A = 2000 (1 + 0.07 = (1 + 0.08

365 )
4 )
12 3000 n
= 2462.88 1500
ln (1 + 0.08
365 ) = ln ( 2)
n
The accumulated value after three years earning quarterly

compounded interest is $2462.88. n ln (1 + 0.08
365 ) = ln ( 2)
ln ( 2)
P = 2000, r = 0.07, t = 3, m = 2 implies: n= ≈ 3162.8
ln (1 + 0.08
365 )
A = 2000 (1 + 0.07
2 ) = 2458.51
6
It will take 3163 days, or eight years 241 days for $1500 to
accumulate to $3000.
The accumulated value after three years earning
semiannually compounded interest is $2458.51. 7. The information in the problem is:
5. The information in the problem is: A = 5000, r = 0.09, m = 12, n = mt = 120 .
A = 3000, P = 1500, r = 0.08, m = 4 . Using the compound interest formula we have:
5000 = P (1 + 0.09
12 )
120
3000 = 1500 (1 + 0.08

4 )
n

To find the number of periods needed, solve for n as
5000
shown at the top of the next column. P= = 2039.69
(1 + 0.09
12 )
120
The principal needed to accumulate $5000 in 10 years at 9%

interest compounded monthly is $2039.69.
Chapter 6 Summary Exercises 409
8. The information in the problem is: 12. The information given in the problem is:
A = 5000, r = 0.09, m = 2, n = mt = 20 . A = 40, 000, i = 0.02, n = 30 . To calculate the

payments we use the formula:
p=
( 0.02)( 40, 000) = 986.00 .
5000 = P (1 + )
0.09 20
2 (1.02)30 − 1
Solving for P we get: The payments to the sinking fund having a goal of $40,000
are $986.00 per period for 40 periods.
5000
P= = 2073.21
(1 + 0.092 )
20 13. The information given in the problem is:
A = 40, 000, i = 0.04, n = 12 . To calculate the

The principal needed to accumulate $5000 in 10 years at 9% payments we use the formula:
interest compounded semiannually is $2073.21.
9. The information in the problem is: p=

( 0.04)( 40, 000) = 2662.09 .
(1.04)12 − 1
A = 5000, r = 0.09, m = 1, n = mt = 10 .
The payments to the sinking fund having a goal of $40,000
Using the compound interest formula we have: are $2662.09 per period for 12 periods.
5000 = P (1 + 0.09
1 )
10
tells us:
APR = (1 + 0.08
365 )
365
5000 − 1 = 0.0833
P= = 2112.05
(1 + )0.09 10
1
The principal needed to accumulate $5000 in 10 years at 9% 15. The information in the problem is:
interest compounded monthly is $2112.05. r = 0.06, m = 4 . The effective rate of interest formula tells
10. Using the future value of an ordinary annuity formula us:
we get:
APR = (1 + 0.06
4 ) − 1 = 0.0614
4
⎡ (1 + 0.01)18 − 1 ⎤
A = 1000 ⎢ ⎥ = 19, 614.75 .
⎢⎣ ( 0.01) ⎥⎦ The annual percentage rate is 6.14%.

The future value of the annuity will be $19,614.75. r = 0.07, m = 12 . The effective rate of interest formula
tells us:
11. Using the future value of an ordinary annuity formula
APR = (1 + 0.07
12 ) − 1 = 0.0723
we get: 12
⎡ (1 + 0.03) 40 − 1 ⎤
A = 5000 ⎢ ⎥ = 377, 006.30 . The annual percentage rate is 7.23%.
⎣⎢ ( 0.03) ⎦⎥
The future value of the annuity will be $377,006.30.
APR = (1 + 0.08
1 ) − 1 = 0.08
17. The information in the problem is: 1
r = 0.10, m = 2 . The effective rate of interest formula tells

us:
The annual percentage rate is 8%.
APR = (1 + 0.10
2 ) − 1 = 0.1025
2
b. The effective rate of interest is:

APR = (1 + 0.079
2 ) − 1 = 0.0806
2

p = 125, r = 0.072, m = 12, n = mt = 180 .
c. The effective rate of interest is:
The future value of an annuity with this information is given
by:
APR = (1 + 0.078
4 ) − 1 = 0.0803
4
⎡ (1 + 0.072
12 )
180
− 1⎤
A = 125 ⎢ ⎥ = 40,316.50 . The annual percentage rate is 8.03%.
⎢⎣ ⎥⎦
0.072
12
d. The effective rate of interest is:
They will have $40,316.50 available for her daughter’s
APR = (1 + 0.077
12 ) − 1 = 0.0798
12
college education in 15 years.

P = 14, 000, r = 0.069, m = 12, n = mt = 36 . e. The effective rate of interest is:
APR = (1 + 0.076
365 )
The monthly payment will be: 365
− 1 = 0.0790
p=
( 0.069
12 ) (14, 000)
= 431.64 . The annual percentage rate is 7.90%.
1 − (1 + 0.069 ) −36
12
f. The effective rate of interest is:
The approximate monthly payment for the new car will be
$431.64. APR = e0.075 − 1 = 0.0779
20. The answer will vary with the individual. We assume The annual percentage rate is 7.79%.
that the individual is 20 years old, and they can obtain an
interest rate of 5.2% compounded monthly. The monthly Comparing all of the effective rates of interest, the best rate
payments required to yield one million dollars at the age of is the rate given by investment (b).
65 are:
p=
( 12 ) (1, 000, 000) = 464.51 .
0.052
P = 12, 000, r = 0.086, n = 60 .
(1 + 0.052
12 )
540
−1
a. Assuming that interest is charged on a monthly basis the
In other words, a 20 year old will need to save $464.51 each estimated monthly payments are:
month in an annuity that pays 5.2% interest compounded
monthly to have one million dollars saved by the age of 65.
p=
( 0.086
12 ) (12000)
= 246.78 .
1 − (1 + 0.086 )
−60
21. We compare the A.P.R of each rate by using the 12
effective rate of interest formula for each interest rate.
The monthly payments will be $246.78.
a. The effective rate of interest is stated at the top of the
next column.
Chapter 6 Sample Test Answers 411
b. Assuming that interest is charged on a daily basis, but the 24. The initial simplex tableau for the linear programming
APR is the same, then the accumulated monthly interest will problem is:
be identical, so the payments will be the same.
x y z s1 s2 s3 f
Cumulative Review
⎡ 1 2 1 1 0 0 0 10 ⎤
⎢ 1 3 0 0 1 0 0 6⎥
23. To find the inverse of the matrix, consider the ⎢ ⎥
augmented matrix: ⎢ 0 1 1 0 0 1 0 5⎥
⎢ ⎥
⎢⎣ −5 −4 0 0 0 0 1 0 ⎥⎦
⎡ 1 0 3 1 0 0⎤
⎢2 4 6 0 1 0⎥
The simplex method indicates that we should pivot on the
⎢ ⎥
one in row 2, column 1. Pivoting on this element results in
⎢⎣ 0 −2 1 0 0 1⎥⎦
the tableau:
Pivot on the one in row 1, column 1 to get: x y z s1 s2 s3 f

⎡ 1 0 3 1 0 0⎤ ⎡ 0 −1 1 1 −1 0 0 4 ⎤
⎢ 0 4 0 −2 1 0 ⎥ ⎢1 3 0 0 1 0 0 6⎥
⎢ ⎥ ⎢ ⎥
⎢⎣ 0 −2 1 0 0 1⎥⎦ ⎢0 1 1 0 0 1 0 5⎥
⎢ ⎥
⎢⎣ 0 11 0 0 5 0 1 30 ⎥⎦
Next pivot on the four in row 2, column 2 to get:
The absence of negative values below the horizontal bar
indicates that we have reached the maximum of the
⎡ 1 0 3 1 0 0⎤ objective function. The maximum value of f is 30 . This
⎢ −1 1
⎥
⎢0 1 0 2 4 0⎥ value occurs when x = 6, y = 0, z = 0 .
⎢ 0 0 1 −1 1 1⎥
⎣ 2 ⎦ 25. Using the slope-intercept formula, the equation for the
line with slope 3 and y-intercept 2 is given by:
Finally pivot on the one in row 3, column 3 to get:
y = 3x + 2 .
⎡1 0 0 4 −3
2 −3 ⎤
⎢ −1 1
⎥
⎢0 1 0 2 4 0⎥
Chapter 6 Sample Test Answers
⎢ 0 0 1 −1 1
1⎥⎦
⎣ 2
1. The amount is given by:

Therefore the inverse matrix is:
⎡4 −3
−3 ⎤ A = 1200 (1 + ( 0.06) 5) = 1560
2
⎢ −1 1
⎥
⎢ 2 4 0⎥ At the end of five years $1560 will have accumulated in the
⎢ −1 1
1 ⎥⎦ account.
⎣ 2
2. The amount is given by:
A = 3000 (1 + 0.07
2 )
12
= 4533.21
At the end of six years $4533.21 will have accumulated in

the account.
3. The amount is given by: 8. The compound interest formula gives us:
A = 8000 (1 + 0.09
12 ) = 8492.79 30, 000 = P (1 + 0.065
4 ) .
8 48
At the end of eight months $8492.79 will have accumulated Solving for P we get:
in the account.
30, 000
4. The amount is given by: P= = 13,838.67 .
(1 + 0.065
4 )
48
( )
A = 5000 1 + (.10) ( 128 ) = 5333.33
The required principal will be $13,838.67.
At the end of eight months $5333.33 will have accumulated
9. The compound interest formula gives us:
in the account.
2 P = P (1 + 0.08
365 ) .
n
7000 = 2400 (1 + 0.08

2 ) .
n
Solving for n we get:
2 = (1 + 0.08
365 )
n
Solving for n we get:
ln ( 7000
2400 ) ln ( 2)
n= = 27.29 . n= = 3162.83
ln (1 + 0.08
2 ) ln (1 + 0.08
365 )
Therefore we need 28 interest periods, or 14 years for $2400 It will take 3163 days or 8.67 years for the principal to
to accumulate to $7000. double in value.
6. The compound interest formula gives us: 10. The future value of the annuity is given by:
25000 = 3000 (1 + 0.10

1 ) .
n
⎡ (1 + 0.05) 20 − 1 ⎤
A = 800 ⎢ ⎥ = 26, 452.76 .
Solving for n we get: ⎢⎣ 0.05 ⎥⎦
ln ( 25000
3000 )
The value in the account after 20 periods is $26,452.76.
n= = 22.25 .
ln (1 + 0.10
1 ) 11. The future value of the annuity is given by:
Therefore we need 23 interest periods, or 23 years for $3000 ⎡ (1 + 0.02) 30 − 1 ⎤

to accumulate to $25,000. A = 2000 ⎢ ⎥ = 81,136.16 .
⎢⎣ 0.02 ⎥⎦
The value in the account after 30 periods is $81,136.16.
20, 000 = P (1 + )
0.12 84
12 .
12. The payments are calculated using the following
formula:
20, 000 p=
( 0.03)( 200, 000) = 5809.48
P= = 8670.31 . (1 + 0.03) 24 − 1
(1 + 0.12
12 )
84
Equal payments of $5809.48 are needed to save $200,000 in

The required principal will be $8670.31. 24 periods at the period interest rate of 3%.
Chapter 6 Sample Test Answers 413
13. The payments are calculated using the following

formula:
p=
( 0.04)( 200, 000) = 6716.35
(1 + 0.04) 20 − 1
Equal payments of $6716.35 are needed to save $200,000 in
24 periods at the period interest rate of 3%.
p = 120, r = 0.08, m = 12, n = 36 .
The present value of the loan is:
⎡1 − (1 + 0.08
12 )
−36
⎤
P = 120 ⎢ ⎥ = 3829.42 .
⎢⎣ ⎥⎦
.08
12
A fair price for the loan would be $3829.42.
15. The effective rate of interest is given by:
APR = (1 + 0.07
4 ) − 1 = 0.0719 .
4
16. The effective rate of interest is given by:
APR = (1 + 0.09
365 )
365
− 1 = 0.0942 .
17. The monthly payments are given by:
p=
( 0.02)( 50, 000) = 1029.14 .
1 − (1 + 0.02)
−180
The monthly payments will be $1029.14.
18. The number of payments is given by:
⎛ 800 ⎞
ln ⎜ ⎟
⎝ 800 − 70, 000 ( 0.94
12 ) ⎠
n= = 148.22
ln (1 + 0.94
12 )
There will be 149 payments, or 12 years and five months

required to pay off the loan.
In-Depth Application:
Credit and Debt Consolidation
1.
a. To calculate the current credit card debt, simply add the current balances on each card. The credit card debt is $12,528.13.
b. The total minimum monthly payment is the sum of the minimum monthly payments for each card. Their minimum monthly
payment is $505.00.
Problems 2 – 3.
For Hometown Bank the table shows the amount applied to interest and the principal for each of the first 12 months.
Payment Applied to Applied to

Principal $3,421.84
1 $ 144.00 $ 52.75 $ 91.25 $ 3,330.59 r= 0.185
2 $ 144.00 $ 51.35 $ 92.65 $ 3,237.94 m= 12
3 $ 144.00 $ 49.92 $ 94.08 $ 3,143.86 n= 12
4 $ 144.00 $ 48.47 $ 95.53 $ 3,048.33 I= 0.015417
5 $ 144.00 $ 47.00 $ 97.00 $ 2,951.32 Pmt 144
6 $ 144.00 $ 45.50 $ 98.50 $ 2,852.82
7 $ 144.00 $ 43.98 $ 100.02 $ 2,752.80
8 $ 144.00 $ 42.44 $ 101.56 $ 2,651.24
9 $ 144.00 $ 40.87 $ 103.13 $ 2,548.11
10 $ 144.00 $ 39.28 $ 104.72 $ 2,443.40
11 $ 144.00 $ 37.67 $ 106.33 $ 2,337.07
12 $ 144.00 $ 36.03 $ 107.97 $ 2,229.10
Totals $ 1,728.00 $ 535.26 $ 1,192.74
For Trinity Credit Services the table shows the amount applied to interest and the principal for each of the first 12 months.
Payment Applied to
Principal $981.13
1 $ 75.00 $ 17.58 $ 57.42 $ 923.71 r= 0.215
2 $ 75.00 $ 16.55 $ 58.45 $ 865.26 m= 12
3 $ 75.00 $ 15.50 $ 59.50 $ 805.76 n= 12
4 $ 75.00 $ 14.44 $ 60.56 $ 745.20 I= 0.017917
5 $ 75.00 $ 13.35 $ 61.65 $ 683.55 Pmt 75
6 $ 75.00 $ 12.25 $ 62.75 $ 620.80
7 $ 75.00 $ 11.12 $ 63.88 $ 556.92
8 $ 75.00 $ 9.98 $ 65.02 $ 491.90
9 $ 75.00 $ 8.81 $ 66.19 $ 425.71
10 $ 75.00 $ 7.63 $ 67.37 $ 358.34
11 $ 75.00 $ 6.42 $ 68.58 $ 289.76
12 $ 75.00 $ 5.19 $ 69.81 $ 219.95
Totals $ 900.00 $ 138.82 $ 761.18
Chapter 6 In–Depth Application 415
For AmeriCredit the table shows the amount applied to interest and the principal for each of the first 12 months.
Payment Applied to
Principal $6,201.22
1 $ 150.00 $ 40.82 $ 109.18 $ 6,092.04 r= 0.079
2 $ 150.00 $ 40.11 $ 109.89 $ 5,982.15 m= 12
3 $ 150.00 $ 39.38 $ 110.62 $ 5,871.53 n= 12
4 $ 150.00 $ 38.65 $ 111.35 $ 5,760.19 I= 0.006583
5 $ 150.00 $ 37.92 $ 112.08 $ 5,648.11 Pmt 150
6 $ 150.00 $ 37.18 $ 112.82 $ 5,535.29
7 $ 150.00 $ 36.44 $ 113.56 $ 5,421.73
8 $ 150.00 $ 35.69 $ 114.31 $ 5,307.43
9 $ 150.00 $ 34.94 $ 115.06 $ 5,192.37
10 $ 150.00 $ 34.18 $ 115.82 $ 5,076.55
11 $ 150.00 $ 33.42 $ 116.58 $ 4,959.97
12 $ 150.00 $ 32.65 $ 117.35 $ 4,842.62
Totals $ 1,800.00 $ 441.40 $ 1,358.60
For Fray’s Department Store the table shows the amount applied to interest and the principal for each of the first 12 months.
Payment Applied to
Principal $1,102.15
1 $ 91.00 $ 16.53 $ 74.47 $ 1,027.68 r= 0.18
2 $ 91.00 $ 15.42 $ 75.58 $ 952.10 m= 12
3 $ 91.00 $ 14.28 $ 76.72 $ 875.38 n= 12
4 $ 91.00 $ 13.13 $ 77.87 $ 797.51 I= 0.015
5 $ 91.00 $ 11.96 $ 79.04 $ 718.47 Pmt 91
6 $ 91.00 $ 10.78 $ 80.22 $ 638.25
7 $ 91.00 $ 9.57 $ 81.43 $ 556.82
8 $ 91.00 $ 8.35 $ 82.65 $ 474.18
9 $ 91.00 $ 7.11 $ 83.89 $ 390.29
10 $ 91.00 $ 5.85 $ 85.15 $ 305.14
11 $ 91.00 $ 4.58 $ 86.42 $ 218.72
12 $ 91.00 $ 3.28 $ 87.72 $ 131.00
Totals $ 1,092.00 $ 120.85 $ 971.15
For Splurge Credit the table on the next page shows the amount applied to interest and the principal for each of the first 12
months.
Payment Applied to
Principal $821.79
1 $ 45.00 $ 3.36 $ 41.64 $ 780.15 r= 0.049
2 $ 45.00 $ 3.19 $ 41.81 $ 738.33 m= 12
3 $ 45.00 $ 3.01 $ 41.99 $ 696.35 n= 12
4 $ 45.00 $ 2.84 $ 42.16 $ 654.19 I= 0.004083
5 $ 45.00 $ 2.67 $ 42.33 $ 611.86 Pmt 45
6 $ 45.00 $ 2.50 $ 42.50 $ 569.36
7 $ 45.00 $ 2.32 $ 42.68 $ 526.68
8 $ 45.00 $ 2.15 $ 42.85 $ 483.83
9 $ 45.00 $ 1.98 $ 43.02 $ 440.81
10 $ 45.00 $ 1.80 $ 43.20 $ 397.61
11 $ 45.00 $ 1.62 $ 43.38 $ 354.23
12 $ 45.00 $ 1.45 $ 43.55 $ 310.68
Totals $ 540.00 $ 28.89 $ 511.11
The last row in the tables, compute the total amounts paid on the card and towards interest and principal respectively.
4.
To find the number of periods required to pay off the balance for Hometown Bank, use the formula:
⎛ 144 ⎞
ln ⎜ ⎟
⎝ 144 − 3421.84 ( 0.185
12 ) ⎠
n= = 29.82 .
ln (1 + 0.185
12 )
Thus, it will take 30 payments or two years and six months to pay off the balance on the card.
To find the number of periods required to pay off the balance for Trinity Credit services, use the formula:
⎛ 75 ⎞
ln ⎜ ⎟
⎝ 75 − 981.13 ( 0.215
12 ) ⎠
n= = 15.04 .
ln (1 + 0.215
12 )
Thus, it will take 30 payments or one year and four months to pay off the balance on the card.
To find the number of periods required to pay off the balance for AmeriCredit, use the formula:
⎛ 150 ⎞
ln ⎜ ⎟
⎝ 150 − 6201.22 ( 0.079
12 ) ⎠
n= = 48.4 .
ln (1 + 0.079
12 )
Thus, it will take 49 payments or four years and one month to pay off the balance on the card.
To find the number of periods required to pay off the balance for Fray’s Department store, use the formula on the next page.
⎛ 91 ⎞
ln ⎜ ⎟
⎝ 91 − 1102.15 ( 0.18
12 ) ⎠
n= = 13.5 .
ln (1 + 0.18
12 )
Thus, it will take 14 payments or one year and two months to pay off the balance on the card.
To find the number of periods required to pay off the balance for Splurge Credit, use the formula:
⎛ 45 ⎞
ln ⎜ 0.049 ⎟
⎝ 45 − 821.79 ( 12 ) ⎠
n= = 19.02 .
ln (1 + 0.049
12 )
Thus, it will take 20 payments or one year and eight months to pay off the balance on the card.
5.
We apply the information given in the set up to the amortization schedule shown. Notice, that the minimum payment is applied
first to the interest payment on the balance transfer, then to the interest payment on the original balance, then to the transfer
balance, and finally to the original principal.
Payment Applied to Applied to Applied to Applied to

Number Amount interest Principal Unpaid Balance transfer interest Transfer Balance Transfer Balance
Principal $3,421.84 $921.13
1 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 3.45 $ 87.79 $ 833.34
2 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 3.13 $ 88.12 $ 745.22
3 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.79 $ 88.45 $ 656.76
4 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.46 $ 88.78 $ 567.98
5 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.13 $ 89.12 $ 478.86
6 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.80 $ 89.45 $ 389.41
7 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.46 $ 89.79 $ 299.63
8 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.12 $ 90.12 $ 209.50
9 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 0.79 $ 90.46 $ 119.04
10 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 0.45 $ 90.80 $ 28.24
11 $ 144.00 $ 52.75 $ 62.90 $ 3,358.94 $ 0.11 $ 28.24 $ -
12 $ 144.00 $ 51.78 $ 92.22 $ 3,266.72 $ - $ - $ -
Totals $ 1,728.00 $ 632.07 $ 155.12 $ 19.68 $ 921.13
a. From the table we see that $19.68 of the monthly payments will be applied to the interest on the balance transfer, and $632.07
will be applied to interest on the original balance in the next year.
b. From the table we see that $921.13 will be applied to the transfer balance next year, and $155.12 will be applied to the original
balance next year.
c. The transfer balance will be paid off after 11 payments.
d. The original balance will be $3266.72 at the end of the next year.
e. To find the number of periods required to pay off the remaining balance use the formula:
⎛ 144 ⎞
ln ⎜ 0.185 ⎟
⎝ 144 − 3266.72 ( 12 ) ⎠
n= = 28.13
ln (1 + 0.185
12 )
Thus, it will take 29 payments or 2 years and five months to pay off the remaining balance.
6.
We apply the information given in the set up to the amortization schedule shown. Notice, that the minimum payment is applied
first to the interest payment on the balance transfer, then to the interest payment on the original balance, then to the transfer
balance, and finally to the original principal.

Principal $3,421.84 $1,102.15
1 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 4.13 $ 87.11 $ 1,015.04
2 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 3.81 $ 87.44 $ 927.60
3 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 3.48 $ 87.77 $ 839.83
4 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 3.15 $ 88.10 $ 751.73
5 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.82 $ 88.43 $ 663.30
6 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.49 $ 88.76 $ 574.54
7 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 2.15 $ 89.09 $ 485.45
8 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.82 $ 89.43 $ 396.03
9 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.49 $ 89.76 $ 306.26
10 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 1.15 $ 90.10 $ 216.17
11 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 0.81 $ 90.44 $ 125.73
12 $ 144.00 $ 52.75 $ - $ 3,421.84 $ 0.47 $ 90.78 $ 34.95
Totals $ 1,728.00 $ 633.04 $ - $ 27.76 $ 1,067.20
a. From the table we see that $27.76 of the monthly payments will be applied to the interest on the balance transfer, and $633.04
will be applied to interest on the original balance in the next year.
b. From the table we see that $1067.20 will be applied to the transfer balance next year, and nothing will be applied to the original
balance next year.
c. There will still be $27.76 owed on the transfer balance at the end of next year.
d. The original balance will be $3421.84 at the end of the next year.
e. To find the number of periods required to pay off the remaining balance of 3421.84 + 27.76 = 3449.60 use the formula:
⎛ 144 ⎞
ln ⎜ ⎟
⎝ 144 − 3449.60 ( 0.185
12 ) ⎠
n= = 30.13
ln (1 + 0.185
12 )
Thus, it will take 31 payments or two years and seven months to pay off the remaining balance.
7.
We apply the information given in the set up to the amortization schedule shown. Notice, since there was no original balance the
minimum payment is applied first to the interest payment on the balance transfer then to the transfer balance.

Principal $- $9,623.06
1 $ 144.00 $ - $ - $ - $ 36.09 $ 107.91 $ 9,515.15
2 $ 144.00 $ - $ - $ - $ 35.68 $ 108.32 $ 9,406.83
3 $ 144.00 $ - $ - $ - $ 35.28 $ 108.72 $ 9,298.10
4 $ 144.00 $ - $ - $ - $ 34.87 $ 109.13 $ 9,188.97
5 $ 144.00 $ - $ - $ - $ 34.46 $ 109.54 $ 9,079.43
6 $ 144.00 $ - $ - $ - $ 34.05 $ 109.95 $ 8,969.48
7 $ 144.00 $ - $ - $ - $ 33.64 $ 110.36 $ 8,859.11
8 $ 144.00 $ - $ - $ - $ 33.22 $ 110.78 $ 8,748.34
9 $ 144.00 $ - $ - $ - $ 32.81 $ 111.19 $ 8,637.14
10 $ 144.00 $ - $ - $ - $ 32.39 $ 111.61 $ 8,525.53
11 $ 144.00 $ - $ - $ - $ 31.97 $ 112.03 $ 8,413.50
12 $ 144.00 $ - $ - $ - $ 31.55 $ 112.45 $ 8,301.05
Totals $ 1,728.00 $ - $ - $ 405.99 $ 1,322.01
a. From the table we see that $405.99 of the monthly payments will be applied to the interest on the balance transfer, in the next
year.
b. From the table we see that $1322.01 will be applied to the transfer balance next year.
c. There will still be $8301.05 remaining on the transfer balance at the end of next year, this will be the new principal starting
next year.
d. To find the number of periods required to pay off the remaining balance of use the formula:
⎛ 144 ⎞
ln ⎜ ⎟
⎝ 144 − 8301.05 ( 0.185
12 ) ⎠
n= = 143.5
ln (1 + 0.185
12 )
Thus, it will take 144 payments or 12 years to pay off the remaining balance.
8. Without a doubt, lowering interest payments is the single most important step in reducing debt. Both Trinity and Fray’s had
very high interest rate charges attached to them, so the actions in problems 4 and 5 would be beneficial in reducing those debts.
In fact, since Trinity Credit has the highest interest rate, it would be most advantageous to transfer that balance especially since it
will be paid off in less than the year, so the interest rate will not go back up on it. Problem 6 seems like a good option, but after
one year, the interest rate will be back to 18.5%, which will be very harmful to Suzanne and Steve’s financial future because it
will take 12 additional years to pay off that loan making a payment of $144 a month. It would be best for Suzanne and Steve to
transfer both of the high interest debts to Hometown bank, and then apply a larger minimum payment then $144. They could still
have smaller monthly payments then the $310 they are paying currently. If the option is available, the best solution is to transfer
all of the balances to Splurge Credit with the interest rate of 4.9%. Then apply a monthly payment of $500 the balance. The table
on the next page shows the value at the end of one year:
Solutions Manual to accompany Finite Mathematics: An Applied Approach 3rd edition 0321173341
Payment Applied to
1 $ 500.00 $ 51.16 $ 448.84 $ 12,079.29 r= 0.049
2 $ 500.00 $ 49.32 $ 450.68 $ 11,628.61 m= 12
3 $ 500.00 $ 47.48 $ 452.52 $ 11,176.09 n= 12
4 $ 500.00 $ 45.64 $ 454.36 $ 10,721.73 I= 0.004083
5 $ 500.00 $ 43.78 $ 456.22 $ 10,265.51 Pmt 500
6 $ 500.00 $ 41.92 $ 458.08 $ 9,807.43
7 $ 500.00 $ 40.05 $ 459.95 $ 9,347.47
8 $ 500.00 $ 38.17 $ 461.83 $ 8,885.64
9 $ 500.00 $ 36.28 $ 463.72 $ 8,421.93
10 $ 500.00 $ 34.39 $ 465.61 $ 7,956.32
11 $ 500.00 $ 32.49 $ 467.51 $ 7,488.80
12 $ 500.00 $ 30.58 $ 469.42 $ 7,019.38
Totals $ 6,000.00 $ 491.25 $ 5,508.75
The number of periods required to pay off the debt is given by:
⎛ 500 ⎞
ln ⎜ 0.049 ⎟
⎝ 500 − 12528.13 ( 12 ) ⎠
n= = 26.5
ln (1 + 0.049
12 )
Thus, it would take a total of 27 payments to pay off all the debt, or two years and three months.
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Section 6.1 Simple and Compound Interest 383

Chapter 6 6. We have the following information:

The compound interest formula gives us:

1. We have the following information:

2. We have the following information:

A = 6000 (1 + ( 0.12)(1) ) = $ 6720.00 . A = 4000 (1 + 0.09

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9. We have the following information for each part:

a. Compounding semiannually means: m = 2, mt = 20

The compound interest formula gives us:

b. Compounding quarterly means: m = 4, mt = 40

The graph is shown below:

P = 10, 000, r = 0.14, t = 124 = 1

b. Compounding monthly means: m = 12, mt =4 $10,000

A = 10, 000 (1 + 0.14

13. The information given in the problem is:

A = 20, 000, P = 8000, m = 1, t = 10

A = 10, 000 (1 + 0.14

11. We have the following table:

Years Simple Compounded Solve the equation for r.

14. The information given in the problem is:

A = 12, 000, P = 3500, m = 1, t = 6 1 + 4r = ( 6500

Thus, investing $2300 at an interest rate of 21.3%

r = 0.228 Substituting into the compound interest formula we get:

Thus, investing $2500 at an interest rate of 8.85%

6000 = 1000 (1 + 0.12

A = 3500, P = 1200, r = 0.08, m = 2

3500 = 1200 (1 + 0.08

Solve the equation for n . n ln (1.03) = ln ( 6)

30, 000 = 4800 (1 + 0.15

A = 5000, P = 2400, r = 0.06, m = 2

5000 = 2400 (1 + 0.06

50, 000 = 6000 (1 + 0.10

Substituting into the compound interest formula we get the

= (1 + 0.10) 26. The information given in the problem is:

( ) = 22.25 12, 000 = P (1 + 0.09

60, 000 = 10, 000 (1 + 0.09

A = 30, 000, r = 0.12, m = 4, t = 10

n ln (1.09) = ln ( 6) Solve the equation for P .

ln ( 6) 30, 000 = P (1 + 0.03)

A = 5000, r = 0.06, m = 1, t = 10 28. The information given in the problem is:

35, 000 = P (1 + 0.06

Solve the equation for P .

P at the top of the next page.

35, 000 = P (1 + 0.015) A = 5000 (1 + 0.07

Thus, a principal of $ 1420.41 must be invested to achieve

A = 10, 000, r = 0.09, m = 12, t = 8 20, 000

10, 000 = P (1 + 0.09

10, 000 = P (1 + 0.0075)

Thus, a principal of $ 4880.62 must be invested to achieve

P = 5000, r = 0.07, m = 2, t = 10 6000

A = 20, 000, P = 8000, m = 2, t = 12

75, 000 = 50, 000 (1 + )

We solve the equation for t at the top of the next page.

25, 000 = 10, 000 (1 + 0.08

ln ( 2.5) 45. If the purchasing power decreases by 5% each year, then

( $1200)( 0.85) = $1020 in your account.

The interest earned on an account is given by the n ln ( 0.95) = ln ( 12 )

Since P = 1020 , and i = r

A = 110, 000 (1 + 0.05