ALTERNATIVE PROBLEMS AND SOLUTIONS
5-1A. (Compound Interest) To what amount will the following investments accumulate?
a. $4,000 invested for 11 years at 9% compounded annually
b. $8,000 invested for 10 years at 8% compounded annually
c. $800 invested for 12 years at 12% compounded annually
d. $21,000 invested for 6 years at 5% compounded annually
5-2A. (Compound Value Solving for n) How many years will the following take?
a. $550 to grow to $1,043.90 if invested at 6% compounded annually
b. $40 to grow to $88.44 if invested at 12% compounded annually
c. $110 to grow to $614.79 if invested at ...view middle of the document...
$3,000 a year for 10 years discounted back to the present at 8%
b. $50 a year for 3 years discounted back to the present at 3%
c. $280 a year for 8 years discounted back to the present at 7%
d. $600 a year for 10 years discounted back to the present at 10%
5-7A. (Compound Value) Trish Nealon, who recently sold her Porsche, placed $20,000 in a savings account paying annual compound interest of 7%.
a. Calculate the amount of money that will have accrued if she leaves the money in the bank for 1, 5, and 15 years.
b. If she moves her money into an account that pays 9% or one that pays 11%, rework part a using these new interest rates.
c. What conclusions can you draw about the relationships between interest rates, time, and future sums from the calculations you have done above?
5-8A. (Compound Interest with Nonannual Periods) Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period:
Annual (Compounded Deposit
Amount Interest Every Period
Account Deposited Rate Month) (Years)
Korey Stringer $2,000 12 % 2 2
Eric Moss 50,000 12 1 1
Ty Howard 7,000 18 2 2
Rob Kelly 130,000 12 3 2
Matt Christopher 20,000 14 6 4
Juan Porter 15,000 15 4 3
5-9A. (Compound Interest with Nonannual Periods)
a. Calculate the future sum of $6,000, given that it will be held in the bank 5 years at an annual interest rate of 6%.
b. Recalculate part a using a compounding period that is (1) semiannual and (2) bimonthly.
c. Recalculate parts a and b for a 12% annual interest rate.
d. Recalculate part a using a time horizon of 12 years (annual interest rate is still 6%).
e. With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts c and d, what conclusions do you draw when you compare these figures with the answers found in parts a and b?
5-10A. (Solving for i in Annuities) Ellen Denis, a sophomore mechanical engineering student, receives a call from an insurance agent, who believes that Ellen is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her an annual fixed income. The annuities are as follows:
Payment into Duration
Annuity Amount of Money of Annuity
Annuity (at t = 0) Received per year (Years)
A $50,000 $8500 12
B $60,000 $7000 25
C $70,000 $8000 20
If Ellen could earn 12% on her money by placing it in a savings account, should she place it instead in any of the annuities? Which ones, if any? Why?
5-11A. (Future Value) Sales of a new marketing book were 10,000 copies this year and were expected to increase by 15% per year. What are expected sales during...