Problems
BASIC PROBLEMS
5-1 FutureValue Compute the future value in year 9 of a $2,000 deposit in year 1 and another $1,500 deposit at the end of year 3 using a 10 percent interest rate. (LG5-1)
5-3 Future Value of an Annuity What is the future value of a $900 annuity payment over five years if interest rates are 8 percent? (LG5-2)
5-5 Present Value Compute the present value of a $2,000 deposit in year 1 and another $1,500 deposit at the end of year 3 if interest rates are 10 percent. (LG5-3)
5-7 Present Value of an Annuity What’s the present value of a $900 annuity payment over five years if interest rates are 8 percent? (LG5-4)
5-12 Present Value of an Annuity Due If the present value of an ordinary, 6-year annuity is $8,500 and interest rates are 9.5 percent, what’s the present value of the same annuity due? (LG5-6)
5-15 Effective Annual Rate A loan is offered with monthly payments and a 10 percent APR. What’s the loan’s effective annual rate (EAR)? (LG5-7)
5-39 Loan Payments You wish to buy a $25,000 car. The dealer offers you a 4-year loan with a 9 percent APR. What are the monthly payments? How would the payment differ if you paid interest only? What would the consequences of such a decision be? (LG5-9) (Calculate monthly payment only)
EXAMPLE
5-2 FutureValue Compute the future value in year 7 of a $2,000 deposit in year 1 and another $2,500 deposit at the end of year 4 using an 8 percent interest rate. (LG5-1)
(LG5-1)
Interest Rate
8%
Year
Deposit
Year
Deposit
1
$ 2,000.00
1
2
2
3
3
4
4
$ 2,500.00
5
5
6
6
7
7
Future Value
$3,173.75
$3,149.28
Total Future Value: $6,323.03
$6,323.03
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