Tutorial of Chapter 3

Tutorial Question 1

How much will be in a savings account after three years if $100 is deposited at the end
of each year for 3 years and the account pays 8% interest?

Tutorial Question 2

How much will be in a savings account after five years if $100 is deposited at the
beginning of each year for 5 years and the account pays 6% interest?

Tutorial Question 3

The H&L Co. Is considering the purchase of a debarking machine that is expected to
provide cash flows as followings. If the appropriate annual discount rate is 14%, what
is the present value of this cash-flow stream? If we use PVIFA 14%,5=3.433, how can we
reduce the caluculation?

PV=?
time 0 1 2 3 4 5 6 7
1200 2000 2400 1900 1600 1400 1400

Tutorial Question 4

An investment pays you $100 at the end of each of the next 3 years. The investment
will then pay you $200 at the end of year 4, $300 at the end of Year 5, and $500 at the
end of year 6. if the rate of interest earned on the investment is 8%, what is its future
value?

Tutorial Question 5

Xu Lin recently obtained a 10-year, $50,000 loan. The loan carries an 8% compound
annual interest rate and calls for annual installments of $7,451.47 at the end of each of
the next 10 year.
A. How much of the first year's payment is principal?
B. construct a loan amortization table to show how much principal and interest will be
paid in each year.
C. How much total interest will be paid over the life of the loan?
Tutorial Question 5

Xu Lin recently obtained a 10-year, $50,000 loan. The loan carries an 8% compound
annual interest rate and calls for annual installments of $7,451.47 at the end of each of
the next 10 year.
A. How much of the first year's payment is principal?
B. construct a loan amortization table to show how much principal and interest will be
paid in each year.
C. How much total interest will be paid over the life of the loan?
 8 9 10
1400 1400 1400
 Tutorial of Chapter 3
Q1 i= 0.08
Time 0 1 2 3
0 100 100 100
FVA= 0 116.64 108 100
Total FVA= 324.64

Q2 i= 0.06
Time 0 1 2 3 4 5
100 100 100 100 100 0
FVAD= 133.8226 126.2477 119.1016 112.36 106 0
Total FVAD= 597.5319

Q3 Annual discount rate= 0.14

Time 0 1 2 3 4 5
0 1200 2000 2400 1900 1600
PVA= 0 1052.6316 1538.935057 1619.931639 1124.952527 830.9899
Time 6 7 8 9 10
1400 1400 1400 1400 1400
PVA= 637.8212 559.4923 490.7827 430.5111 377.6413
① Total PVA= 8663.6892
② PVIFA14%,5= 3.433
PVA= 2496.1897
Total PVA= 8663.6303

Q4 i= 0.08
Time 0 1 2 3 4 5
0 100 100 100 200 300
FV= 0 146.9328 136.05 125.9712 233.28 324
Time 6
500
FV= 500 Total FV= 1466.2329

Q5 loan= 50000 i= 0.08

Time 0 1 2 3 4 5
Installment 0 7451.47 7451.47 7451.47 7451.47 7451.47
Time 6 7 8 9 10
Installment 7451.47 7451.47 7451.47 7451.47 7451.47

A Interest1= 4000
Payment1= 3451.47
B Time 0 1 2 3 4 5
Interest 0 4000 3723.8824 3425.675392 3103.611823 2755.7832
Payment 0 3451.47 3727.5876 4025.794608 4347.858177 4695.6868
Time 6 7 8 9 10
Interest 2380.1282 1974.4209 1536.2570 1063.0399 551.9655
Payment 5071.3418 5477.0491 5915.2130 6388.4301 6899.5045
C
Total interest= 24514.7642