Homework 4

Problems

1. An individual wishes to deposit an amount of money now and $100 every six months
so that at the end of five years $1,500 will have been accumulated. With interest at 4%
per year, compounded semiannually, how much should be deposited now?
3. A machine at a cost of $5,000 was purchased 3 years ago. It can be sold now for
$3,000. If the machine is kept, the annual operating and maintenance costs will be
$1,500. If it is kept and operated for next five years, determine the amount at time 0
(now) equivalent to the cost of owning and operating the machine for the next five-year
period. It is anticipated that the machine can be sold for $1,000 at the end of the fiveyear period. Use aninterest rate of 10%.
4. Mary Smith took a car loan of $12,000 to make 60 monthly payments at a nominal
interest rate of 12% on the understanding that the interest rate may be changed
sometime in the future. Compute:
(a) the monthly payment for Mary.
(b) the loan balance immediately after the 24th payment.
(c) the monthly payment for the remainder of the loan if the interest rate is
reduced to 9%.