Jamerin L Delos Santos

EXERCISE 3

COMPUTATION: Show your solution

1. Jose now has P500. How much would he have after 6 years if he leaves it invested at 5.5%

With annual compounding? (2 points)

Principal (P) : $ 500.00

Annual Rate (R) : % 5.5

Compound (n) Annually (1/Yr)

Time (T in years) 75

Answers = $689.42

A=P + I where

P (principal) $500.00

I (Interest) $189.42

2. Last year Joy Corporation’s sales were P225 million. If sales grow at 6% per year, how large

(in millions) will they be 5 years later? (2 points)

Growth rate (CARG) 6%

Number of periods 5

Initial value 225000000

Final value 301,100,754,96

 3. Suppose the U.S. Treasury offers to sell you a bond for P747.25. No payments will be made

Uil the bond matures 5 years from now, at which time it will be redeemed for P1,000. What

Interest rate would you earn if you bought this bond at the offer price? (5 points)

FV=PV* (1+i)^n

1000=747.25(1+i)^5

Inserting i=06 makes the equation true

So6.0% is the interest rate earned on the bond

4. How much would P1, growing at 3.5% per year, be worth after 75 years? (2 points)

Principal (P) : $ 1.00

Annual Rate (R) :% 3.5
Compound (n) Annually (1/yr)
Time (t in years) 6

Answers =$13.20

A= P + I where
P (Principal) =$ 1.00
I (Interest) =$ 12.20

5. Suppose a Zeros Corporation bond will pay P450,000. 00 ten years from now. If the going

Interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today? (2 points)
450,000(1+0.0425)^-10

296,791.79 or 296,792

6. What’s the future value of P1,500 after 5 years if the appropriate interest rate is 6%,

Compounded semi-annually? (2 points

Principal (P) : $ 1,500.00

Annual Rate (R) : % 6

Compound (n) Semi-annually (2/yr)

Time (t in years) 5

Answers 2,015.87

A = P + I where

P (principal) = $ 1,500.00

I (interest) = $ 515.87