Chapter 6 Interest Formulas - Equal Payment Series 3.13 If You Desire To Withdraw The Following Amounts Over The Next Five Years From A

CHAPTER 6 INTEREST FORMULAS – EQUAL PAYMENT SERIES
3.13 If you desire to withdraw the following amounts over the next five years from a savings
account that earns 8% interest compounded annually, how much do you need to deposit now?
32,000 43,000 46,000 28,000

𝑃𝑃 = + + +
(1 + 8%)2 (1 + 8%)3 (1 + 8%)4 (1 + 8%)5
32,000 43,000 46,000 28,000

= + + +
(1.08) 2 (1.08) 3 (1.08) 4 (1.08)5
= 114,437.33 $
3.14 If $1,500 is invested now, $1,800 two years from now, and $2,000 four years from now
at an interest rate of 6% compounded annually, what will be the total amount in 15 years?
𝐹𝐹 = 1500 ∗ (1. +006)15 + 1800 ∗ (1. +006)13 + 1500 ∗ (1. +006)11
𝐹𝐹 = 3,594.84 + 3,839.27 + 3,786.60 = 11,230.71 $
3.15 A local newspaper headline blared, “Bo Smith Signed for $30 Million.” A reading of
the article revealed that on April 1, 2005, Bo Smith, the former record-breaking running back
from Football University, signed a $30 million package with the Dallas Rangers. The terms of
the contract were $3 million immediately, $2.4 million per year for the first five years (with
the first payment after 1 year) and $3 million per year for the next five years (with the first
payment at year 6). If Bo’s interest rate is 8% per year, what would his contract be worth at the
time he signs it?
1
3.16 How much invested now at 6% would be just sufficient to provide three payments, with
the first payment in the amount of $7,000 occurring two years hence, then $6,000 five years
hence, and finally $5,000 seven years hence?
Given, a
annual Interest rate= 6%
From this money $7,000 will be paid after 2 years,
$6,000 after 5 years and $5,000 after 7 years.
So, the Sum of the present value of these payments would be the current investment amount.
=7,000/ (1.06) ^2+ 6,000/ (1.06) ^5+5,000/ (1.06) ^7
=7,000x0.88999644+6,000x0.7473258172+5,000x0.665057113
=6,229.98+4,483.55+3,325.29
=14,038.81
3.17 What is the future worth of a series of equal year-end deposits of $1,000 for 10 years
in a savings account that earns 7%, annual interest if
(a) All deposits are made at the end of each year?
(1 + 𝑖𝑖)𝑁𝑁 − 1
𝐹𝐹 = 𝐴𝐴 � �
𝑖𝑖
(1 + 0.07)10 − 1
𝐹𝐹 = 1000 � �
0.07
0.97
𝐹𝐹 = 1000 � �
0.07
𝐹𝐹 = 13860
2
(b) All deposits are made at the beginning of each year?
(1 + 0.07)10 − 1
𝐹𝐹 = 1000 � � × 1.07
0.07
0.97
𝐹𝐹 = 1000 � � × 1.07
0.07
𝐹𝐹 = 14830.2 $
3.18 What is the future worth of the following series of payments?
𝐹𝐹 = 𝐴𝐴(𝐹𝐹/𝐴𝐴, 𝑖𝑖, 𝑁𝑁)
(a) $3,000 at the end of each year for 5 years at 7% compounded annually
(b) $4,000 at the end of each year for 12 years at 8.25% compounded annually
(c) $5,000 at the end of each year for 20 years at 9.4% compounded annually
(d) $6,000 at the end of each year for 12 years at 10.75% compounded annually
3.19 What equal annual series of payments must be paid into a sinking fund to accumulate
the following amounts?
𝑖𝑖
Sinking fund formula: 𝐴𝐴 = 𝐹𝐹 (1+𝑖𝑖)𝑁𝑁
−1
(a) $22,000 in 13 years at 6% compounded annually

(b) $45,000 in 8 years at 7% compounded annually
(c) $35,000 in 25 years at 8% compounded annually
(d) $18,000 in 8 years at 14% compounded annually
3.20 Part of the income that a machine generates is put into a sinking fund to replace the
machine when it wears out. If $1,500 is deposited annually at 7% interest, how many years
must the machine be kept before a new machine costing $30,000 can be purchased?
𝐹𝐹 = 𝑃𝑃(1 + 𝑖𝑖)𝑛𝑛
30,000 = 1,500(1.07)𝑛𝑛
log 2 = 𝑛𝑛 log 1.07
𝐿𝐿𝐿𝐿𝐿𝐿2
Then 𝑛𝑛 = = 10.24 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
𝐿𝐿𝐿𝐿𝐿𝐿 1.07
3
3.21 A no-load (commission-free) mutual fund has grown at a rate of 11% compounded
annually since its beginning. If it is anticipated that it will continue to grow at that rate, how
much must be invested every year so that $15,000 will be accumulated at the end of five years?
𝑖𝑖
𝐴𝐴 = 𝐹𝐹
(1 + 𝑖𝑖)𝑁𝑁 − 1
0.11
𝐴𝐴 = 15000
(1 + 0.11)5 − 1
𝐴𝐴 = 2408.41$
3.22 What equal annual payment series is required to repay the following present amounts?
𝐴𝐴 = 𝑃𝑃(𝐴𝐴/𝑃𝑃, 𝑖𝑖, 𝑁𝑁)
(a) $10,000 in 5 years at 5% interest compounded annually

(b) $5,500 in 4 years at 9.7% interest compounded annually
(c) $8,500 in 3 years at 2.5% interest compounded annually
(d) $30,000 in 20 years at 8.5% interest compounded annually
3.23 You have borrowed $25,000 at an interest rate of 16%. Equal payments will be made
over a three-year period. (The first payment will be made at the end of the first year.) What
will the annual payment be, and what will the interest payment be for the second year?
3.24 What is the present worth of the following series of payments?
(a) $800 at the end of each year for 12 years at 5.8% compounded annually
(b) $2,500 at the end of each year for 10 years at 8.5% compounded annually
(c) $900 at the end of each year for 5 years at 7.25% compounded annually
(d) $5,500 at the end of each year for 8 years at 8.75% compounded annually
3.25 From the interest tables in Appendix B, determine the values of the following factors
by interpolation and compare your results with those obtained from evaluating the A/P and P/A
interest formulas:
(a) The capital recovery factor for 38 periods at 6.25% interest

(b) The equal payment series present-worth factor for 85 periods at 9.25% interest

Chapter 6 Interest Formulas - Equal Payment Series 3.13 If You Desire To Withdraw The Following Amounts Over The Next Five Years From A

Uploaded by

Copyright:

Available Formats

Chapter 6 Interest Formulas - Equal Payment Series 3.13 If You Desire To Withdraw The Following Amounts Over The Next Five Years From A

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 6 Interest Formulas - Equal Payment Series 3.13 If You Desire To Withdraw The Following Amounts Over The Next Five Years From A

Uploaded by

Copyright:

Available Formats

CHAPTER 6 INTEREST FORMULAS – EQUAL PAYMENT SERIES

32,000 43,000 46,000 28,000

32,000 43,000 46,000 28,000

𝐹𝐹 = 1500 ∗ (1. +006)15 + 1800 ∗ (1. +006)13 + 1500 ∗ (1. +006)11

𝐹𝐹 = 3,594.84 + 3,839.27 + 3,786.60 = 11,230.71 $

annual Interest rate= 6%

From this money $7,000 will be paid after 2 years,

$6,000 after 5 years and $5,000 after 7 years.

=7,000/ (1.06) ^2+ 6,000/ (1.06) ^5+5,000/ (1.06) ^7

(a) All deposits are made at the end of each year?

3.18 What is the future worth of the following series of payments?

𝐹𝐹 = 𝐴𝐴(𝐹𝐹/𝐴𝐴, 𝑖𝑖, 𝑁𝑁)

(a) $22,000 in 13 years at 6% compounded annually

log 2 = 𝑛𝑛 log 1.07

𝐴𝐴 = 𝑃𝑃(𝐴𝐴/𝑃𝑃, 𝑖𝑖, 𝑁𝑁)

(a) $10,000 in 5 years at 5% interest compounded annually

3.24 What is the present worth of the following series of payments?

(a) The capital recovery factor for 38 periods at 6.25% interest

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.