Homework – Chapter 6
1. Steven Jackson invests $57,000 at 10% annual interest, leaving the money invested
without withdrawing any of the interest for 10 years. At the end of
the 10 years, Steven withdraws the accumulated amount of money.
a. Compute the amount Steven would withdraw assuming the investment earns
simple interest.
Total withdrawn : $ 114,000
b. Compute the amount Steven would withdraw assuming the investment earns
interest compounded annually.
Total withdrawn: $ 147,843
c. Compute the amount Steven would withdraw assuming the investment earns
interest compounded semiannually.
Total withdrawn : $ 151,238
2. Using the appropriate interest table, answer the following questions. (Each case is
independent of the others.
a. What is the future value of 22 periodic payments of $ 4,970 each made at the
beginning of each period and compounded at 8%?
The Future Value: $ 297,670
b. What is the present value of $ 3,910 to be received at the beginning of each
of 28 periods, discounted at 5% compound interest?
The present value: $ 61,164
c. What is the future value of 17 deposits of $ 3,500 each made at the beginning
of each period and compounded at 10%? (Future value as of the end of
the 17th period.)
The Future Value: $ 156,097
d. What is the present value of 6 receipts of $ 3,300 each received at the
beginning of each period, discounted at 9% compounded interest?
The present value: $ 16,136
3. Using the appropriate interest table, answer the following questions. (Each case is
independent of the others.
a. What is the future value of $ 8,690 at the end of 7 periods at 8% compounded
interest?
The Future Value: $ 14,893
b. What is the present value of $ 8,690 due 8 periods hence, discounted at 6%?
The present value: $ 5,452
c. What is the future value of 17 periodic payments of $ 8,690 each made at the
end of each period and compounded at 10%?
The Future Value: $ 352,333
d. What is the present value of $ 8,690 to be received at the end of each
of 18 periods, discounted at 5% compound interest?
The present value: $ 101,583
4. Daniel Bautista needs $ 21,000 in 6 years.
What amount must he invest today if his investment earns 8% compounded annually?
What amount must he invest if his investment earns 8% annual interest compounded
quarterly?
a. Investment at 8% annual interest : $ 13,234
b. Investment at 8% annual interest, compounded quarterly: $ 13,056
5. Sally Medavoy will invest $ 7,990 a year for 19 years in a fund that will earn 10%
annual interest.
If the first payment into the fund occurs today, what amount will be in the fund
in 19 years? If the first payment occurs at year-end, what amount will be in the fund
in 19 years?
a. First payment today : $ 449,637
b. First payment at year-end: $ 408,761
6. For each of the following cases, indicate (a) to what rate columns, and (b) to what
number of periods you would refer in looking up the interest factor.
1. In a future value of 1 table:
Annual Number of Compounded (a) Rate of (b) Number of
Rate Years Invested Interest Periods
a. 11% 11 Annually 11 % 11
b. 12% 7 Quarterly 3 % 28
c. 12% 19 Semiannually 6 % 38
2. In a present value of an annuity of 1 table: (Round answers to 1 decimal place, e.g.
458,58.1.)
Annual Number of Number of Frequency of (a) Rate of (b) Number
Rate Years Invested Rents Involved Rents Interest of Periods
a. 10% 25 25 Annually 10 % 25
b. 11% 14 28 Semiannually 5.5 % 28
c. 12% 6 24 Quarterly 3 % 24
7. Mark Spear invested $ 16,000 today in a fund that earns 8% compounded annually.
To what amount will the investment grow in 2 years? To what amount would the
investment grow in 2 years if the fund earns 8% annual interest compounded
semiannually?
a. Investment at 8% annual interest : $ 18,662
b. Investment at 8% annual interest, compounded semiannually: $ 18,718
8. Using the appropriate interest table, compute the present values of the following
periodic amounts due at the end of the designated periods.
a. $ 51,570 receivable at the end of each period for 8 periods compounded
at 12%.
Present Value: $256,181
b. $ 51,570 payments to be made at the end of each period for 17 periods at 10%.
Present Value: $ 413,671
c. $ 51,570 payable at the end of the seventh, eighth, ninth, and tenth periods
at 12%.
Present Value: $ 79,357