Question

1. Determine the discount rate assuming the present value of $940 at the end of 1-year is $865?

2. $9,800 is deposited for 12 years at 5% compounded annually, determine the FV?

3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what
would be the present value?

4. Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years.   She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her investment earns a 7 percent interest rate, how much will she have saved for their trip if the interest is compounded in each of the following ways?
a. Annually
b. Quarterly
c. Monthly
5. If you applied for a loan of $10,000 from two different banks, and Bank Y makes an offer to
charge interest of 5% compounded monthly and Bank Z offers you 6% semi-annual interest due
at the end of the year. What will be the difference in the Effective Interest Rate charged by the
two banks?

6. Your grandfather left an inheritance for you of $80,000. However you can only drawdown on
the investment as follows:
Years 1 – 4 $10,000 each year and
Year 5 $40,000
Interest on the fund is 5%. What is the present worth of this inheritance?

7. H & B Limited borrowed $15,000 at a 14 percent annual interest rate to be repaid over four
years. The loan is amortized into three equal annual end-of-year payments. Calculate the
annual end-of-year loan payment.

Answer 1

1)

Discount rate:

= ($940/$865)-1

= 8.67%

Hence, Discount rate is 8.67%

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