Week 5 Exercises

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Exercise 6-1

For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor.

1. In a future value of 1 table:

  
Annual Rate
 
Number of Years Invested
 
Compounded
 
(a) Rate of Interest
 
(b) Number of Periods
a. 9% 9 Annually 
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%
 
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b. 12% 5 Quarterly 
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%
 
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c. 10% 15 Semiannually 
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%
 
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2. In a present value of an annuity of 1 table:

  
Annual Rate
 
Number of Years Invested
 
Number of Rents Involved
 
Frequency of Rents
 
(a) Rate of Interest
 
(b) Number of Periods
a. 9% 25 25 Annually 
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%
 
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b. 10% 15 30 Semiannually 
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%
 
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c. 12% 7 28 Quarterly 
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%
 
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Exercise 6-2

Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdraws the accumulated amount of money.

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Compute the amount Alan would withdraw assuming the investment earns simple interest. (Round answers to 0 decimal places, e.g. 458,581.)

Total withdrawn 
$
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(Use the table below.)


Compute the amount Alan would withdraw assuming the investment earns interest compounded annually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Total withdrawn 
$
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(Use the table below.)


Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Total withdrawn 
$
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Exercise 6-8

Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2018 and continuing through 2021. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2014–2017.

Warning

 

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(Use the table below.)



How much must the balance of the fund equal on June 30, 2017, in order for Clarence Weatherspoon to satisfy his objective? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Balance of the fund equal on June 30, 2017 
$
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(Use the table below.)



What are each of Clarence’s contributions to the fund? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Clarence’s contributions to the fund 
$
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Problem 6-2

Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns. (Use the tables below.)



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What is the amount of the payments that Ned Winslow must make at the end of each of 8 years to accumulate a fund of $90,000 by the end of the 8th year, if the fund earns 8% interest, compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

$
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Robert Hitchcock is 40 years old today and he wishes to accumulate $500,000 by his 65th birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his 40th through his 64th birthdays. What annual deposit must Robert make if the fund will earn 12% interest compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

$
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Diane Ross has $20,000 to invest today at 9% to pay a debt of $47,347. How many years will it take her to accumulate enough to liquidate the debt?

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years

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Cindy Houston has a $27,600 debt that she wishes to repay 4 years from today; she has $19,553 that she intends to invest for the 4 years. What rate of interest will she need to earn annually in order to accumulate enough to pay the debt?

Rate of interest 
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%
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