Unit 4 – Review 1 Solutions

I
1. I = Prt 2. P 
rt
16 67.14
= 650 × 0.0625 × ≈ $54.17  ≈ $4,781.68
12 82
0.0625 
365

I
3. May 13/11 to Mar 21/12 → 313 days 4. t   12
Pr
I 5734  5000
r   12
Pt 5,000  0.06
125.13 734
   12
313 300
3,200 
365
= 0.04559949 ≈ 30 months
≈ 4.56%

I
5. t   365 6. P = S(1 + rt)‒1
Pr
1
36.16  3
  365 P  10,0001  0.0825  
1,500  0.055  12 
36.16
  365 P ≈ $9,797.92
82.5
≈ 160 days

7. P = S(1 + rt)‒1 8. Apr 1 to July 1 → 91 days

= 3991.25(1 + 0.00375 ×8)‒1 S = P(1 + rt)
 91 
= $3875 = 30,000 1  0.0365  
 365 
= $30,273
9. Feb 14th to May 7th = 82 days = 82 of a year
365

I =Prt = $32,000 × 0.11 × 82 ≈ $790.79

365
Can’t clear interest. Interest Balance = $790.79 − $600.00 = $190.79
Principal stays the same: $32,000

May 7th to Aug 20th = 105 days = 105 of a year

365

I = Prt = 32,000 × 0.11 × 105 ≈ $1012.60

365

Clear interest: $2500 − $190.79 − $1012.60 = $1296.61

New Principal = $32,000 − $1296.61= $30,703.39

Aug 20th to Nov 18th = 90 days = 90 of a year

365

I = Prt = $30,703.39 × 0.11 × 90 ≈ $832.78

365

The last payment on Nov 18th :

Interest accumulated for Aug 20th to Nov 18th = $ 832.78
Principal amount remaining on Nov 18th = $30,703.39
Total = $31,536.17

0.045 32 0.075
10. i   0.00375 n  12   32 11.a) i   0.0375 n  2  5  10
12 12 2

FV = PV(1 + i)n FV = PV(1 + i)n

= 2,000 1  0.0375 
10
= 4,500(1 + 0.00375)32
≈ $5,072.60 ≈ $2890.09

b) I = 2890.09 ‒ 2000
= $890.09
 0.04
12. Apr 1, 2013 to July 10, 2015 → 830 d 13. i   0.01 n  42 8
4

0.0525 830
i  0.013125 n  4  9.0958... FV = PV(1 + i)n
4 365

PV = FV(1 + i)‒n = 5,500(1 + 0.01)8

= 2500(1 + 0.013125)─9.0958… = 5,955.711881…
≈ $2220.39
0.0525 28
i  0.02625 n  2  4.6666...
2 12
FV = PV(1 + i)n
= 5,955.711881(1 + 0.02625)4.6666…
≈ $6,721.23

I = $6721.23 ‒ $5500 = $1221.23

14. 2 years and 3 months = 27 months 12 mo = 1 yr

0 15 mo 27 mo
8% p.a. compounded annually 11.5% p.a. compounded quarterly
$130,000 FV1

PV2 FV2

0.08
i  0.08
1
15 FV1 = 130,000(1.08)1.25 = 143,127.4872
n  1   1.25
12

0.115
i  0.02875
4
n  4 1  4 FV2 = 143,127.4872 (1.02875)4 ≈ 160,310.67

160,310.67 ‒ 130,000 = 30,310.67

The fund grew by $30,310.67.
15. Using Present Values:
0.055
Option 1: $100,000 Option 2: i  0.00458... n  12  3  36
12

PV = FV(1 + i)─n
= 53,000(1 + 0.00458…)─36
≈ 44,955.31
Total = 53,000 + 44,955.31 = 97,955.31

Difference = 100,000 ‒ 97,955.31 = 2,044.69

Option 1 > Option 2  Option 1 is better by $2,044.69.

Using Future Values:

Option 1: FV = PV(1 + i)n Option 2: FV = PV(1 + i)n
 100 ,000 1  0.0045833 ...  53,000 1  0.0045833 ...
36 36

≈ 117,894.86 ≈ 62,484.28
Total = 53,000 + 62,484.28 = 115,484.28

Difference = 117,894.86 ‒ 115,484.28 = 2,410.58

Option 1 > Option 2  Option 1 is better by $2,410.58.

5% p.a. compounded quarterly

16. 0 4 years 6 years

4% p.a. compounded semi-annually

PV1 FV1 FV2 = $49,014.50

PV2
0.05 0.04
i2   0.0125 n2  4  2  8 i1   0.02 n1  2  4  8
4 2

PV2  FV2 1  i2  PV1  FV1 1  i1 

 n2  n1

 49,014 .501  0.0125   44,377 .65215 ...1  0.02 

8 8

= 44,377.65215… ≈ $37,875.90
 1 yr
17. 4 mo Now 6 mo 12 mo

$500 E1
E2 $800

0.075 10 6
i  0.0375 n1  2   1.6666... n2  2  1
2 12 12

E1 + E2 = 500(1 + 0.0375)1.6666… + 800(1.0375)1

= 531.6390174… + 771.0843373…
≈ 1302.72
 the single payment 6 months from now should be $1302.72.

18. 5 mo Now 3 mo 9 mo

$400 $600 $800

E1
E2 0.12
i  0.01
E3 12

0.12 6 3 8
i  0.01 n1  12  6 n2  12  3 n3  12  8
12 12 12 12

E1 + E2 + E3 = 800(1 + 0.01)─6 + 600(1 + 0.01)3 + 400(1 + 0.01)8

= 753.63618… + 618.1806… + 433.14268…
≈ $1804.96