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Question 1

(A)At the end of three years, how much is an initial deposit of $100 worth, Assuming a compound annual
interest rate of

‘1-100%

2-10%

3-0%

And what will be their Present value ?

(B) At the end of five years, how much is an initial $500 deposit worth, followed by five years annual $100
payments at end of each time period, assuming a compound Annual interest rate of

1-10%

2-5%

3-0%

(C)At the end of Six years, how much is an initial $500 deposit followed by five years, and annual $100
payments worth at the start of each period , assuming a compound Annual interest rate of

1-10%

2-5%

3-0%

(D) At the end of three years. How much is an initial $100 deposit worth, assuming a quarterly
compounded annual interest rate of

1-100%

2-10%

(E) Why do ur answer vary in 1a (1) and in previous question.

(F) At the end of 10 year, how much is $100 initial deposit worth. Assuming an annual interest rate of
10% compounded (i)annually (ii) semiannually (iii) continuously.

Question 2

(a)$100 at the end of three year how much worth today? Assuming a discount rate of 100% ,10% ,0%

(b)What is the aggregate value of $500 received at the end of each of the next three years assuming
a discount rate of 4% and 25%.

(c)$100 is received at the end of one year, $500 at the end of two year and $1000 at the end of three
years. What is the aggregate present value of these receipts assuming a discount rate of 4% and
25%.
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(d)$1000 is received at the end of one year, $500 at the end of two year and $100 at the end of
three years. . What is the aggregate present value of these receipts assuming a discount rate of 4% and
25%.

(e)Compare ur solutions in part (c) with those in part (D) and explain the reason for this difference.

Question 3

Cesario has inherited $25000 and wishes to purchase an annuity that will provide him with steady
income over the next 12 years. He has heard that the local saving and loan association is paying 6%
compound interest on an annual basis.if he deposit his funds. What year end equal dollar amount would
he be able to withdraw annually such that he would have a zero balance after last withdrawal 12 years
from now?

Question 4

You need to have $50000 at the end of 10 years. To accumulate this sum you have decided to save a
certain amount at the end of each of next 10 years and deposit it in the bank. The bank pays 8% interest
rate compounded annually for long term deposits. How much will u have to save each year?

Question 5

Same as question 4 above, except that you deposit a certain amount at the beginning of each of next 10
years. Now how much will u have to save each year..?

Question 6

Miss Lewinsky wishes to borrow $10000 for three years. A group of individuals agree to lend her this
amount if she contract to pay them $16000 at the end of three years. What is the implicit compound
annual interest rate implied by this contract

Question 7

Sales of Gourmet were $500,000 this year and are expected to grow at a compound rate of 20% for the
next 6 years? What will be the sales figure at end of next each year?

Question 8

XYZ ltd is planning to buy a paper machine which expected to provide cash flow in coming years. if the
discount rate is 14%. What is the present value of cash flow, invidually and aggregate?

1 2 3 4 5 6 7 8 9 10
1200 2000 2400 1900 1600 1400 1400 1400 1400 1400

Question 9

Suppose u were to receive $1000 at the end of 10 year. If ur opportunity rate is 10%. What is the present
value of this amount if interest is compounded

1-Annually

2-quarterly
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3-continuously

Question 10

In connection with united states bicentinal, the treasury once offered a saving bond of $1000 that
will worth $1000,000 in 100 year. What is the compounded annual interest rate?

Question 11

• 1- For how long will it take for a investment of $1000 to grow to $1900.if we invested it at a
compound annual interest rate of 10%?

• 2- For how long will it take for a investment of $1550 to grow to $2450.if we invested it at a
compound annual interest rate of 8%?

• 3-For how long will it take for a investment of $1978 to grow to $5400.if we invested it at a
compound annual interest rate of 13.5%?

Question 12

• If you are receiving $1202 coupon of a bond a year for four,5,6,10 years. and risk free rate is 7%
. what will be the Present value for these amount received for respective years?

• Question 13
• Paul walker has a $1,990 at the bank. The interest rate is 7% compounded quarterly for 1 year.
What is the Effective Annual Interest Rate (EAR)?
• 1-Interest rate is 7% compounded semi annually for 5 year?
• 2- Interest rate is 7% compounded annually for 5 year?
• 3- Interest rate is 7% compounded monthly for 5 year?
• 4- Interest rate is 7% compounded daily for 5 year?

Question 14

Earl E. Bird has decided to start saving for his retirement. Beginning on his twenty-first birthday, Earl
plans to invest $2,000 each birthday into a savings investment earning a 7 percent compound annual rate
of interest. He will continue this savings program for a total of 10 years and then stop making payments.
But his savings will continue to compound at 7 percent for 35 more years, until Earl retires at age 65.
Ivana Waite also plans to invest $2,000 a year, on each birthday, at 7 percent, and will do so for a total of
35 years. However, she will not begin her contributions until her thirty-first birthday. How much Will Earl’s
and Ivana’s savings programs be worth at the retirement age of 65? Who is better off financially at
retirement, and by how much?

Question 15

The Happy Hang Glide Company is purchasing a building and has obtained a $170,000 mortgage loan
for 20 years. The loan bears a compound annual interest rate of 15 percent and calls for equal annual
installment payments at the end of each of the 20 years. What is the amount of the annual payment?
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Question 16

Lost Dutchman Mines, Inc., is considering investing in Peru. It makes a bid to the government to
participate in the development of a mine, the profits of which will be realized at the end of five years. The
mine is expected to produce $5 million in cash to Lost Dutchman Mines at that time. Other than the bid at
the outset, no other cash flows will occur, as the government will reimburse the company for all costs. If
Lost Dutchman requires a nominal annual return of 20 percent (ignoring any tax consequences), what is
the maximum bid it should make for the participation right if interest is compounded

(a) Quarterly (b) continuously?

Question 18
When you were born, your dear old Aunt Minnie promised to deposit $1,000 in a savings
account for you on each and every one of your birthdays, beginning with your first. The
savings account bears a 5 percent compound annual rate of interest. You have just turned
25 and want all the cash. However, it turns out that dear old (forgetful) Aunt Minnie
made no deposits on your fifth, seventh, and eleventh birthdays. How much is in the
account now – on your twenty-fifth birthday?
Question 19

Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for himself and
is considering an annuity contract with the Philo Life Insurance Company. Such a contract pays him an
equal-dollar amount each year that he lives. For this cash-flow stream, he must put up a specific amount
of money at the beginning.
According to actuary tables, his life expectancy is 15 years, and that is the duration on which the
insurance company bases its calculations regardless of how long he actually lives.
a. If Philo Life uses a compound annual interest rate of 5 percent in its calculations,
what must Cohen pay at the outset for an annuity to provide him with $10,000 per
year? (Assume that the expected annual payments are at the end of each of the
15 years.)
b. What would be the purchase price if the compound annual interest rate is 10 percent?

Question 20

Assume that you will be opening a savings account today by depositing $100,000. The
savings account pays 5 percent compound annual interest, and this rate is assumed to
remain in effect for all future periods. Four years from today you will withdraw R
dollars. You will continue to make additional annual withdrawals of R dollars for a
while longer – making your last withdrawal at the end of year 9 – to achieve the following
pattern of cash flows over time. (Note: Today is time period zero; one year from
today is the end of time period 1; etc.) How large must R be to leave you with exactly a zero balance after
your final R withdrawal is made at the end of year 9?

Question 21

Suppose that an investment promises to pay a nominal 9.6 percent annual rate of interest.
What is the effective annual interest rate on this investment assuming that interest is
compounded (a) annually? (b) semiannually? (c) quarterly? (d) monthly? (e) daily (365
days)?
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Question 22

“Want to win a million dollars? Here’s how. . . . One winner, chosen at random from all
entries, will win a $1,000,000 annuity.” That was the statement announcing a contest on
the World Wide Web. The contest rules described the “million-dollar prize” in greater
detail: “40 annual payments of $25,000 each, which will result in a total payment of
$1,000,000. The first payment will be made January 1(today); subsequent payments will be
made each January thereafter.” Using a compound annual interest rate of 8 percent,
what is the present value of this “million-dollar prize” as of the first installment on
January 1?