Tutorial Questions 1

On each, first identify as a Future Value annuity or Present Value annuity. Then answer the
question.
1. How much money must you deposit now at 6% interest compounded quarterly in
order to be able to withdraw $3,000 at the end of each quarter year for two years? 
Answer, PV = Present Value, PV=$22457.78
2. Suppose you invested $1000 per quarter over a 15-year period. If money earns an
annual rate of 6.5% compounded quarterly, how much would be available at the end
of the time period. How much is the interest earned?

Answer FV=$100,336.68, Interest= $40,336.68

3. A bank loans a family $90,000 at 4.5% annual interest rate to purchase a house. The
family agrees to pay the loan off by making monthly payments over a 15-year period.
How much should the monthly payment be in order to pay off the debt in 15 years?
Answer type Present Value PMT=$688.49

4. Suppose you have selected a new car to purchase for $19,500. If the car can be
financed over a period of 4 years at an annual rate of 6.9% compounded monthly,
how much will your monthly payments be? How much of your first payment is
interest?  How much of your second payment is interest?

Answer: Present Value PMT=$466.05

Interest From 1st PMT= $112.1 Interest from 2nd PMT= $110.09
5. Suppose you will need $12,000 in 3 years. How much must you invest per month in
order to have $12,000 if money earns an annual rate 6% compounded monthly? How
much of the $12000 is interest?

Answer FV, FV= $745,179.72, Interest= 745179.72-360(500) =$565,179.72

6.  Suppose your parents decide to give you $10,000 to be put in a college trust fund that
will be paid in equally quarterly installments over a 5-year period. If you deposit the
money into an account paying 1.5% per quarter, how much are the quarterly
payments (Assume the account will have a zero balance at the end of period.) Hint:
What is i

Answer, i=1.5%=0.015, PMT=$582.46, PV

 7.  You finally found your dream home. It sells for $120,000 and can be purchased by
paying 10% down and financing the balance at an annual rate of 9.6% compounded
monthly.
a) How much are your payments if you pay monthly for 30 years?
b) Determine how much would be paid in interest.
c) Determine the payoff after 100 payments have been made.
d) Change the rate to 8.4% and the time to 15 years and calculate the payment.
e) Determine how much would be paid in interest and compare with the previous
interest. (to nearest dollar)
Answers PV
a) PMT=$916.01 b) I=$221,763.60 c) Payoff=$100,077.71 d) PMT=$1057.20
e) $139,468

8. Suppose the parents of a child begin making quarterly payments of $1,000 into an
account paying 7% compounded quarterly. Payments begin on the 10th birthday. 
How much will be available on the child’s a) 15th  and b) 21st birthday?

Answers FV 15th Birthday $23,701.61 21st Birthday $65453.15

9.  Experts say that the baby boom generation (born 1946-1960) cannot count on a
company pension or Social Security benefits to provide a comfortable retirement. It is
recommended that they start to save regularly and early. Michael, a baby boomer,
has decided to deposit $200 each month in an account that pays 7.2% compounded
monthly for 20 years.
a) How much money will be in the account at the end of the 20 years?
b) Suppose Michael has determined he needs to accumulate $130,000 from this
annuity. What rate would achieve this goal (use graphs)?
c) If he cannot get the higher rate, what amount would his payments need to be in
order to achieve the goal?
d) Suppose Michael cannot get the higher interest rate, nor increase his payments.
How many months would he need to invest in order to achieve his goal? Use logs.
Answers FV a) $106,752.47 b) 8.78% c) $243.55 d) 266 months