PROBLEM SOLVING:

1. Accumulate 3500 at 5 % compounded quarterly for 4 years and 11 months.

2. What sum of money will be required to discharge a loan of 7800 on April
1, 1992, if the loan is made on October 1, 1983 at a rate of 9%
compounded quarterly?
3. The population of a rural region is expected to fall by 2% per year for the
next 10 years. If the regions current population is 100,000, what is the
expected population 10 years from now?
4. Jea invested 8000 at 6.25% compounded quarterly. After 18 months, the
rate changed to 6.75% compounded semiannually. What amount will Jea
have three years after the initial investment?
5. The original intention was to settle a financial obligation by two payments.
The first payment of
1000 was due one year ago. The second payment of 2000 is due three
years from now. The debtor missed the first payment, and now proposes
three payments that will be economically equivalent to the two originally
scheduled payments. The replacement payments are 500 today, a
second payment in 1 years, and a third payment (twice as large as the
second) in three years. What should the second and third payments be if
money can earn 8% compounded annually?
SOLUTION:
1.

Given: P=3500; j= 5 % or 0.55; m=4; t= 4 yrs and 11 mos or

4.9167
i = j/m
n= mt
i= 5 %/4
n=4(4 11/12)
i= 0.01375 or 1.375%
n=19.67

F= P (1+i)n
= 3500 (1+0.01375)19.67
= 3500 (1.308098)
= 4578.34
2.

Given: P= 100,000; j =2% ; m =1; t= 10 years

i = j/m
n= mt
i= -2%/1
n=1(10)
i= -0.02 or -2%
n=10

F= P(1+i)n
= 100 000 (1+(-0.02))10
= 100 000 (0.08170728)
= 81 707
The regions population is expected to drop to about 81,707 during the
next 10 years
3.

Given:
P= 7800; j= 9%; m=4
t= October 1, 1983 to April 1, 1992

Solution:
i= 9% / 4

t= 1992 - 4 1

n= 8.5 *

4
= 0.0225 or 2.25 %

1983 - 10 -1
8 - 6
= 8 yrs and 6 mos.

F= P (1+i)n
= 7800(1+.0225)34
= 7800 (2.130849)
= 16 620.63
4.
Given: P= 8000; j1= 0.0625 or 6.25%; j2= 0.0675 or 6.75%;
m1=4; m2=2 t=1.5
For the first 18 months,
i = j/m
i = 0.0625/4
i= 0.015625 or 1.5625% (per quarter)
For the next 18 months,
i = j/m
i = 0.0675/2
i= 0.03375 or 3.375% (per quarter)
F1= P (1+i)n
=8000(1+0.015625)6
=8779.91

n= m1t
n=4(1.5)
n=6
n= m2t
n=2(1.5)
n=3
F1= P (1+i)n
=8779.91(1+0.03375)3
=9699.22

Jea will have 9699.22 after three years.

5.

Let the payment due in 1 years be x.

= 34

F1 + P2 = x + F3 + P4
F1 = Future value of 1000, 2 years later
F1= P (1+i)n
=1000(1+0.04)5
= 1216.65
P2 = Present value of $2500, 1 1/2 years earlier
=F(1+ i)-n
=2000(1.04)-3
=1777.99
F3 = Future value of 500, 1 1/2 years later
F3= P (1+i)n
=500(1+0.04)3
= 562.432
P4 = Present value of 2x, 1 years earlier
=F(1+ i)-n
=2x(1.04)-3
= 1.777993x
F1 + P2 = x + F3 + P4
1216.65 + 1777.99 = x + 562.432 + 1.777993x
2432.208= 2.777993x
x= 875.53
The payments should be 875.53 in 1 years and 1751.05 in
three years.