Question

Q25. What is the future value (maturity value) of $15,000, 5%, 4-years note under (a) Simple Interest Method, and (b) Compound Interest Method (annually)? Provide your answer in the space provided in the below.

Q26. Gina's VISA balance is $875.21. She may pay it off in 10 equal end-of-month payments of $100 each. What interest rate is Gina paying?

Q27. What is the amount deposit that Bob must make at the beginning of each year for 10 years in order to accumulate a fund of $120,000 by the end of the tenth year, if the fund earns 6% interest, compounded annually?

Q28. How much Diane has to set aside at the end of every year for the next 6 years in order to pay a debt of $34,000 after 6 years. Diane can earn 6% per year compounded annually.

Q29. If you are a banker, which interest method would you want to apply for granting a loan? Choose one.

    A) Simple Interest Method                   B) Compound Interest Method                                 

Q30. Lisa’s salary as of Jan. 2, 2015 is $28,000. Her retirement will be starting on Jan. 1, 2020. She is expecting a year-end salary increase of 4% per year effective the Jan. 1^st of each of the working year until the start of her retirement. When she retires, her annual retirement benefit is going to be 65% of her last salary.

Compute (a) her last salary before retirement; and (b) her annual retirement salary and place your answer in the space provided.

Answer 1

Answer 25.

Amount = $15,000, Rate = 5%, Time = 4 years

Simple Interest = (Amount * Rate * Time) / 100

= ($15,000 * 5 * 4) / 100 = $3,000

Future Value = $15,000 + $3,000 = $18,000

Compund interest : Amount = Principal (1 + r/n) ^(nt)  

Where:

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded
t = the number of years the money is invested or borrowed for

Amount = $15,000 * (1 + .05/1)^1*4

= $15,000 * 1.2155

= 18,232.50

Interest = A - P = $18,232.50 - $15,000 = $3,232.50

Answer 26.

P = $875.21, A = $1,000 T = 10 months R = ?

Amount = Principal (1 + r/n) ^(nt)  

1,000 = 875.21 (1 + r/10)^10*10

1.0013338029 = 1 + r/10

0.0013338029 = r/10

.013338029 = r

Therefore Rate = 1.33 % monthly

Answer 28.

The size of each payment to produce $34,000 at the end of 6 yaers @ 6% interest, compounded annually will be :

P = (FV * i) / (1 + i)ⁿ - 1

= (34,000 * .06) / (1 + .06)⁶ - 1

= 2040 / 0.4185

= $4,874.55

Answer 29.

For loans simple interest is charged depending on the nature of loan.

Compound interest of loan is charged once you start defaulting, or not repaying the loan correctly or at stipulated times.

So, as a banker, we have to use simple interest method for granting of a loan.

Answer 30.

Solution:

(a) her last salary before retirement = $28,000 x 104% x 104% x 104% x 104% x104%

= $34,066

(b) her annual retirement salary = $34,066 x 65%

= $22,143