Piandre Angelo A.
Fernando
11932716
Module 3 Problem Set
1. TOPIC: Finding the unknown Rate (j) with two possible values of i (10 pts.)
At what interest rate payable quarterly will payments of P6,000 at the end of every 3 months for 2
years and 3 months, discharge a loan of P50,000, principal and interest included?
Given:
A = P50,000
R = P6,000
t = 2.25
m=4
n = (t)(m) = (2.25)(4) = 9
Required: j
Solution:
2 2 𝑛𝑅
(𝑛 − 1)𝑖 + 6(𝑛 + 1)𝑖 + 12(1 − 𝐴
)=0
2 2 (9)(6,000)
(9 − 1)𝑖 + 6(9 + 1)𝑖 + 12(1 − 50,000
)=0
2
80𝑖 + 60𝑖 + (− 0. 96) = 0
2
−𝑏± 𝑏 −4𝑎𝑐
𝑖 = 2𝑎
2
−60± 60 −4(80)(−0.96)
𝑖 = 2(80)
−60±
𝑖 = 160
−60+62.50759 −60−62.50759954
𝑖 = 160
𝑖 = 160
𝑖 = 0.02 𝑖 = -0.77
−𝑛 −𝑛
1 − (1 + 𝑖) 1 − (1 + 𝑖)
A = 𝑅[ 𝑖
] A = 𝑅[ 𝑖
]
−9 −9
1 − (1 + 0.02) 1 − (1 + −0.77)
A = 6000[ 0.02
] A = 6000[ −0.77
]
A = 48,973.42 A = 4.326226157
Answer: At 2% payable quarterly, ₱6,000 at the end of every 2 years and 3 months for 3 months
will discharge a loan of ₱50,000.
2. TOPIC: Present Value and Amount of Annuity Due (5 pts. each)
In return for a loan, Eric agrees to pay Kyle P2,500 at the beginning of each month for 6 months,
with interest at 10% compounded monthly.
A. How much did Eric borrow from Kyle?
Given:
R = P2,500
j = 0.10
t = 6/12 = 0.5
m = 12
n = (t)(m) = (0.5)(12) = 6
i = j/m = 0.1/12 = 0.00833333
Required: A
Solution:
−𝑛
1−(1+𝑖)
𝐴 = 𝑅[ 𝑖
]
−6
1−(1+0.00833333)
𝐴 = 2500[ 0.00833333
]
0.04857346
𝐴 = 0.00833333
𝐴 = 5.82881753 x 2500
𝐴 = P14,572.04
Answer: Eric borrowed P14,572.04 from Kyle.
B. What is the equivalent amount of the loan at the end of 6 months?
Solution:
𝑛
𝑆 = 𝐴(1 + 𝑖)
6
𝑆 = 14, 572. 04(1 + 0. 00833333)
𝑆 = P15,315.99
Answer: At the end of 6 months, the equivalent amount of the loan is P15,315.99.
3. What must you invest today to receive an $18,000 annuity for 5 years semiannually at a 10%
annual rate? All withdrawals will be made at the end of each period. (5 pts.)
Given:
R = $18,000
t=5
j = 0.1
m=2
n = (t)(m) = (5)(2) = 10
i = j/m = 0.1/2 = 0.05
Required: A
Solution:
−𝑛
1−(1+𝑖)
𝐴 = 𝑅[ 𝑖
]
−10
1−(1+0.05)
𝐴 = 18000 [ 0.05
]
𝐴 = $138,991.23
Answer: You must invest $138,991.23 to receive an $18,000 annuity for 5 years
semiannually at a 10% annual rate.
4. Rase High School wants to set up a scholarship fund to provide five $2,000 scholarships for the
next 10 years. If money can be invested at an annual rate of 9%. How much should the
scholarship committee invest today? (5 pts.)
Given:
R = $2,000
t = 10
j = 0.09
m=1
n = (t)(m) = (10)(1) - 10
i = j/m = 0.09/1 = 0.09
Required: A
Solution:
−𝑛
1 − (1 + 𝑖)
A = 𝑅[ 𝑖
]
−10
1−(1+0.09)
A = 2,000( 0.09
)
R = $12,835.32
Answer: $12,835.32 should be invested today at an annual rate of 9%.
5. Joe Wood decided to retire in 5 years in Arizona. What amount should Joe invest today so he can
withdraw $60.000 at the end of each year for 30 years after he retires? Assume Joe can invest
money at 6% compounded annually. (5 pts.)
Given:
R = 60,000
t = 30
j = 0.06
m=1
n = (t)(m) = (30)(1) = 30
i = j/m = 0.06/1 = 0.06
Required: A
Solution:
−𝑛
1 − (1 + 𝑖)
A = 𝑅[ 𝑖
]
−30
1 − (1 + 0.06)
A = 60, 000[ 0.06
]
A = $825,889.87
Answer: Joe should invest $825,889.87 today so that he can withdraw $60,000 at the end of each
year for 30 years after he retires.
6. Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8%
compounded annually. What is Ted's annuity value at the end of eight years? (5 pts.)
Given:
R = 500
t=8
j = 0.08
m=1
n=8
i = j/m = 0.08/1 = 0.08
Required: S
Solution:
𝑛
(1+𝑖) −1
𝑆 = 𝑅[ 𝑖
]
8
(1+0.08) −1
𝑆 = 500 [ 0.08
]
𝑆 = $5,318.31
Answer: The annuity value of Ted at the end of eight years is $5,318.31.
7. Nancy Billows promised to pay her son $600 quarterly for four years. If Nancy can invest her
money at 6% in an ordinary annuity, she must invest how much today. (5pts.)
Given:
R = 600
t=4
j = 0.06
m=1
n = (t)(m) = (4)(1)= 4
i = j/m = 0.06/1 = 0.06
Required: A
Solution:
−𝑛
1 − (1 + 𝑖)
A = 𝑅[ 𝑖
]
−4
1 − (1 + 𝑖)
A = 600[ 𝑖
]
A = $2,079.06
Answer: Nancy must invest $2,079.06 today.
8. Joe Sullivan invests $9,000 at the end of each year for 20 years. The rate of interest Joe gets is 8%
annually. The final value of Joe's investment at the end of the 20th year on this ordinary annuity
is_________. (5pts.)
Given:
R = 9,000
t = 20
j = 0.08
m=1
i = j/m = 0.08/1 = 0.08
Required: 𝑆𝑘
Solution:
𝑘
(1+𝑖) −1
𝑆𝑘 = 𝑅 [ 𝑖
]
20
(1+0.08) −1
𝑆20 = 9000 [ 0.08
]
𝑆20 = $411,857.68
Answer: The final value of Joe’s investment at the end of the 20th year on this ordinary annuity is
$411,857.68
9. Abby Mia wants to know how much must be deposited in her local bank today so that she will
receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually.
(5pts.)
Given:
R = 18,000
t = 20
j = 0.09
m=1
n = (t)(m) = (20)(1) = 20
i = j/m = 0.09/1 = 0.09
Required: A
Solution:
−𝑛
1−(1+𝑖)
𝐴 = 𝑅[ 𝑖
]
−20
1−(1+0.09)
𝐴 = 18000 [ 0.09
]
𝐴 = $164,313.82
Answer: Abby Mia should deposit $164,313.82 today for her to receive $18,000 annually for 20
years at a current rate of 9%.