1. FINANCE PROBLEMS ASSIGNMENT
COURSE TITLE:
COURSE CODE:
PROFESSOR’S NAME:
DATE:

2. PROBLEM 1
Find the future value (FV) one year from now of a $7,000 investment at a 3 percent annual compound interest rate. Also, calculate the FV if the investment is made for two years.
One Year: $7000(1.03) =$7,210
Two Years: $7,000(1.03) ^2=$7,426.30

3. PROBLEM 6
6. Determine the present values (PVs) if $5,000 is received in the future (i.e., at the end of each indicated time period) in each of the following situations:
  a. 5 percent for ten years
$5000(.614) = $3070
  b. 7 percent for seven years
$5000(.623) = $3115
  c. 9 percent for four years
$5000(.708) = $3540

4. PROBLEM 8
Determine the future value (FV) at the end of two years of an investment of $3,000 made now and an additional $3,000 mad one year from now if the compound annual interest rate is 4 percent.
FV = $3,000/(1.04) + $3,000/[(1.04)(1.04)] = $3,000/ $3,000/ =$2, $2, = $5,658.29

5. PROBLEM 9
Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value (FV) of this annuity if your first $5,000 is invested at the end of the first year.
=$38,578.05

6. PROBLEM 10
Determine the present value (PV) now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now if the annual discount rate is 4 percent.
PV= $3000/(1.04) + $3000/(1.04)(1.04)
PV= $3000/ $3000/1.0816
PV= $ $
PV= $

7. PROBLEM 11
What is the present value (PV) of a loan that calls for the payment of $500 per year for six years if the discount rate is 10 percent and the first payment will be made one year from now? How would your answer change if the $500 per year occurred for ten years?
10% for 6 years: $500 (4.355) = $2,177.50
10% for 10 years: $500 (6.145) = $3,072.50

8. PROBLEM 12
Determine the annual payment on a $500,000, 12 percent business loan from a commercial bank that is to be amortized over a five-year period.

9. PROBLEM 13
Determine the annual payment on a $15,000 loan that is to be amortized over a four-year and carries a 10 percent interest rate. Prepare a loan amortization schedule for this loan.

10. PROBLEM 13 Calculations
P= principal loan $15,000, r=interest rate 10%, n=number of payments (which payments are annual), A=payment amounts per period
15,000{0.10(1+0.10)^4/(1+.10)^4-1} = 15,000{.10(1.10)^4/(1.10)^4-1} =15,000{.10(1.4641)/ } = 15,000{.14641/.4641}= 15,000{.3154}=
A= $

11. QUESTION 14
You are considering borrowing $150,000 to purchase a new home.
  a. Calculate the monthly payment needed to amortize an 8 percent fixed-rate-30-year mortgage loan.
$1,100.65
  b. Calculate the monthly amortization payment if the loan in (a) was for 15 years.
$1,433.48

12. PROBLEM 15
Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan’s eight-year life.
  a. At what amount could this loan be sold for to another bank if loans of similar quality carried an 8.5 percent interest rate? That is, what would be the present value (PV) of this loan.
/8= = /0.085=
  b. Now, if interest rates on other similar quality loans are 10 percent, what would be the PV of this loan?
/.1=2100
  c. What would be the PV of the loan if the interest rate is 8 percent on similar quality loans?
/.08=2625

13. PROBLEM 18
Use a financial calculator or computer software program to answer the following questions:
  a. What would be the future value (FV) of $7,455 invested annually for nine years beginning one year from now if the annual interest rate is 19 percent?
FV=P(1+r)^9
FV=7455(1.19)^9
FV=7455*
FV=$
  b.

14. PROBLEM 20
Use a financial calculator or computer software program to answer the following questions.
  a. What is the present value (PV) of $359,000 that is to be received at the end of twenty-three years, the discount rate is 11 percent, and semiannual discounting occurs?
a) PV = $30,583.09    b. How would you answer for (a) change if monthly discounting were used?
b) PV = $28,929.62

15. PROBLEM 21
What would be the present value (PV) of a $9,532 annuity for which the first payment will be made beginning one year from now, payments will last for twenty-seven years, and the annual interest rate is 13 percent?
Present value of Annuity = Annuity * PVIFA at 13% for 27 years Here the annuity investment is every quarter, hence the frequency is 4 Thus the quarterly rate of interest = 13% / 4 = 3

16. PROBLEM 22 Answer the following questions.
  a. What is the annual percentage rate (APR) on a loan that charges interest of .75 percent per month?
APR = .75% x 12 = 9.00%b.
b. What is the effective annual rate (EAR) on the loan described in (a)?
EAR = ( ) = = or 9.38%

17. PROBLEM 23
You have recently seen a credit card advertisement stating that the annual percentage rate (APR) is 12 percent. If the credit card requires monthly payments, what is the effective annual rate (EAR) of interest on the loan?
Periodic interest rate: 12%/12 months = 1%
EAR = ( ) 12 1 =
= or 12.68%

18. PROBLEM 24
A credit card advertisement states that the annual percentage rate (APR) is 21 percent. If the credit card requires quarterly payments, what is the effective annual rate (EAR) of interest on the loan?
EAR = ( ) =
= or 23.24%