1. Lecture 19 Review Test for Compound Interest page 181 Instructor: Dr. Lobna M Farid Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 1

2. 1. On 3/1/04 Beth owes $5000. If money is worth 8% compounded quarterly, find the payoff on her loan if a. Beth discharges the loan early on 5/1/ 03. b. Beth discharges the loan late on 12/1/ 04. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 2

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5. 3. At age 8, Jonathon's dad buys him a $500,8% bond. a. Find the worth of the bond when Jonathon turns 21 and cashes it in. b. How much compound interest did Jonathon's money earn? Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 5

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7. 4. Find the rate of return compounded semiannually that will make $2000 worth $3000 in 3 years. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 7

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9. 5. If your firm's outstanding debt grew from $40,000 in 2000 to $60,000 in 2005, predict its outstanding debt in 2013. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 9

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11. 6. You need $10,000 for a down payment on your home. You have $6000 in your savings account on 5/1/04. On what date would this account accrue enough interest to give you the $10,000 you need if your savings account is earning 4.2%(4) and if a. We round n? b. We give no interest for a portion of a period? c. We pay simple interest for a portion of a period? Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 11

12. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 12

13. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 13

14. 7. Marie owes $2000 on 4/1/05 and another $5000 on 1/1/06. She made a payment of $6000 on 10/1/06. Find Marie's payoff on 4/1/07 at 10%(12). Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 14

15. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 15

16. 8. Conrad leaves $200,000 in a trust paying 8%(2) for his two children, ages 6 and 8, with the stipulation that each will receive the same amount at age 18. Find the amount each child receives at age 18. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 16

17. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 17

18. 9. Find the NPV at 15%(2) and the IRR converted semiannually of an investment of $10,000 that returns $7000 in 1 year and another $6000 in 2 years. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 18

19. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 19

20. 10. Find the NPV at 15%(12) and 18%(12) as well as the IRR for an investment of $2.5 million that brings returns of $1.1 million in 8 months and $1.9 million in 15 months. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 20

21. Instructor: Dr. Lobna M Farid. Instructors: Lobna M Farid Copy rights for Gary C. Guthnie Larry D. Leman, Mathematics of Interest Rates and Finance 21

22. Thank You 22